Running a buy and sell business? Delivering for Uber Eats? Whether it’s a small business, freelancing, or consulting, self-employed individuals like you have to report earnings on your own and pay taxes on your earnings.
If it’s your first time to file, the good news is that it’s not complicated. The only thing you need to do is to keep good records of your earnings and business expenses, and fill out a form. Also, help is always available. The Canada Revenue Agency has plenty of resources and services that can guide you through tax filing.
Here’s a quick guide:
Who is considered as self-employed?
Being self-employed means working independently, with no one overseeing your activities. You are self-employed if you are free to work when and for whom you choose. You may also provide services to different payers at the same time.
There are two types:
- Independent contractors – Those are in business for themselves, including freelancers and gig workers.
- Sole proprietors own their own unincorporated business or with 2 or more partners who create a business together.
What do you need to file a tax return?
- Form T2125 Statement of Business or Professional Activities.
- Form GST 34 return if you are freelancer earning more than $30,000 and have applied for a GST/HST number. To learn more about this process, go to: File a GST/HST return, rebate or election electronically.
- Books and records to track your revenues and expenses.
- You will also need to use a CRA-certified tax software to file. You can use a free or pay-what you-want software (a list is available here: CRA-certified tax software).
What revenues do you need to report?
- Products sold or your sales
- Services rendered (e.g. commissions, consultation fees, etc.)
Keep in mind that you have to report all revenue regardless of how you are paid. This includes cash, credit units with monetary value, or barter transactions. It is smart to set aside a portion of your earnings to pay for taxes. How much do you need to set aside? The general rule is 25% to 30%.
Having a record of business expenses is important because the CRA deducts a certain percentage of these expenses from the tax you owe from your total earnings. Always get receipts or vouchers when you buy something for your business, and file them properly.
Business expenses include things like office supplies, vehicle use expenses or utilities (you can find a list here: Business Expenses).
What kind of records do you need to keep?
- Books, records and supporting documents produced and kept in paper format. Examples: sales and purchase invoices, bank statements, log books.
- Books, records and supporting documents produced on paper, and later converted to and stored in an electronically accessible and readable format. Example: Receipts saved in pdf file, photograph of a cheque saved as jpeg.
- Electronic records and supporting documents produced and kept in an electronically accessible and readable format. Example: Downloaded bank statements from your online account.
Your records should be reliable and complete. They should include all information needed to meet your tax obligations and to calculate your deductions. While the CRA does not specify which records should be kept, businesses are generally expected to keep any information related to the calculation or verification of income and deductions.
For business owners: Learn about My Business Account
Business owners can open a My Business Account to manage their finances better. It is a secure online portal that alllows you to interact with the CRA on various business accounts. These accounts can include GST/HST, payroll, corporation income taxes, excise taxes, excise duties, and others. Go to About My Business Account to learn more.
Need more guidance?
Reporting income can be more complicated for small business owners compared to freelancers. For a more detailed guide, go to Checklist for Small Businesses.
You can also consult a CRA Liaison Officer on tax rules and regulations, or for questions about record-keeping and filing. You can request for an online (Zoom) meeting. This service is offered specifically for small businesses to help them get their tax affairs right. Learn more about this initiative and set an appointment with one on this page: Liaison Officer service.
Sources: Benefits and credits for all and Help for self-employed and small business owners (August 18, 2022, CRA Webinar); and Small business and self-employed income, CRA. Accessed September 2, 2022.
Link to all benefits and credits available on Canada.ca:
Tax-related benefits, credits, deductions and support – Canada.ca
How outreach officers can help your community learn about tax and benefits – Canada.ca
If you need help filing, you can contact a free tax clinic: Free tax clinics – Canada.ca
Some self-employed individuals may be eligible for employment insurance special benefits by contributing to the Employment Insurance (EI) program. For more information, visit Service Canada.
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