T1 Self Employed Tax Service

As soon as you start trading goods or services for money without an employer paying you for it, the federal government considers you a sole proprietor. At that point, you’re expected to report all income you receive as a sole proprietor to the Canada Revenue Agency (CRA). It’s reported as part of your personal income on your personal tax return under T2125. As a self-employed person, your business earnings and your personal income are one and the same. There’s no separate income tax rate for money you make from your business. However, you do need to pay Canadian Pension Plan (CPP) contributions, and you have the option of making Employment Insurance contributions as well. So the total of your tax obligations would be income tax + CPP + EI (which is optional) and if you make under $3,500, you can’t contribute to CPP. And anything you earn over $55,300 won’t have CPP taken from it.

What is the benefit of EI?

Since 2010, contributions to EI have been optional for all self-employed people. Contributing to EI does come with some significant benefits, including:

• Maternal leave
• Parental/adoptive leave
• Sick leave
• Benefits of taking care of sick children

Set aside money for Taxes:

Since you are not working for any employer who deduct a tax on you pay and remit that to CRA. You should set aside about 25%-30% of your income each month so that you can pay later when you file a tax return.

What forms should you file?

• In addition to T1 a self-employed must report his income and expenses in T2125.
• Consult an accountant and seek advice about the deductions available.
• T4A slips: If you’re an independent contractor, expect a Form T4A, Statement of Pension, Retirement, Annuity, and Other Income from every client you worked with during the year. The client fills out one copy of the form, reporting how much they paid you, and submits it to the CRA. They fill out a second form, and send it to you. Using your T4As for the year, you can determine how much revenue you earned from each client, and in total.
• Deductions: Deductions are expenses you incur in the course of running your business. And, if you keep good records, you may be able to deduct some of them from your taxes.
• If you are not sure what qualifies as a deductible expense? You can check out the CRA’s thorough guide on deductions.
• Every qualified business expense needs to be backed up with an itemized receipt, in case of a CRA audit for at least 6 years
• For ambiguous expenses: ones that could be interpreted as being for personal use, rather than professional—take care to make a note on the receipt about the purpose of the expense. For example, if you grab lunch with a client in order to discuss a project, just keep a receipt and note who you met and what did you discuss.
• If you have a home office, the expenses related to it are partially deductible. For instance, if you have a home office, and you use your internet connection for freelance work 80% of the time, and for Netflix the other 20% of the time, you can only deduct 80% of your internet bill. Rent as per space occupied etc.

HST/GST:

• You are only required to collect federal sales tax if your net taxable income for the year is over $30,000. If you earn less than that, the federal government classifies you as a “Small Supplier,” and you aren’t responsible for collecting GST or HST.
• If your sales are over $30,000, you must get a HST/GST number. It’s up to you to keep track of your income, and apply for a number when you earn more than $30,000 in a year. You may get the HST/GST number by calling CRA at 1-800-959-5525. Learn more about registering a GST/HST number from the CRA’s guide.

 HST vs. PST

Some provinces have combined their GST and PST into a single tax, HST. Others charge them separately. For a full overview, and to learn about the obligations in your province, the Canada Business Network offers a comprehensive guide.

Remitting GST and HST

Both HST and GST are remitted to the Government of Canada. (The federal government distributes to the provinces their share of HST.) Depending on your income, this remittance could occur on an annual, quarterly, or monthly schedule. You remit your GST/HST at the same time that you file Form GST34. Once you get a GST/HST number, the CRA sets you up with a payment plan and the forms you need to submit. If you don’t have a number, but learning about federal sales tax gives you a thrill, you can check out the CRA’s guide

Filing Deadline:

• To file a self-employed return, the deadline is June 15 however, you must pay the tax by April 30