While self-employment comes with some great benefits, such as a flexible work schedule and freedom to select your work projects, you also have big responsibilities, when it comes to tax time. You are totally responsible for reporting your income and filing and paying your taxes.
It’s a good idea to get familiar with the CRA required self-employment tax forms. When you understand what you have to do, you can organize your finances, keep great records, and make tax filing much easier.
Do you need to file self-employment taxes? You are considered by the CRA to be self-employed if your business is one of the following:
- A sole proprietorship
- An unincorporated partnership
- An unincorporated limited liability partnership
- An unincorporated general partnership
Your business income is then part of your personal tax return which means that you will pay the personal income tax rate rather than the corporate rate if your business was incorporated.
Do you need a T4A? Unlike when you are employed and receive a T4 from your employer, if you are self-employed as an independent contractor then your clients should send you a T4A slip which will include the dollar amount for each job you do for them. To figure out your income you need to add the amounts from each slip.
However, you will not always get a T4A especially if you are selling goods direct to customers, they will not give you one. You will then be responsible for keeping accurate records of all of your income from receipts, invoices and any other proof of income. It is a good idea to use a program such as Quickbooks to keep track and you can run a report to find out your total income for the year.
What is a form T2125 for? This a Statement of Business or Professional activities which helps you to calculate your gross income as well as your business expenses which you deduct from your income to lower your taxable income. On the T2125 you will have to provide the following information:
- Information about your business including a description of your products and services.
- Income from internet activities such as affiliate sales or ad traffic revenue.
- Business or professional income.
- The amount of GST you paid
- Costs incurred while making and selling your goods
- Business expenses
- Expenses paid for while running your business from home
- Information about your business partners if you are in a partnership
Once you have completed form T2125 you will know your gross and net income for the year which you will enter on your T1 form. If you run a few businesses, then you will need to fill out a T2125 for each of them.
When Do You Need to Pay GST? If your business makes more than $30,000 per year then you are required to register for a GST number and collect GST from your customers. You will submit a GST return either monthly, quarterly, or annually.
Tax Deadlines If you are self-employed you will have until June 15th to file your tax return instead of the April 30th deadline. However, you should still pay any taxes you owe by April 30th. If you are employed in addition to running your own business, then you will have to file your T1 return by April 30th. Your clients have until the last day of February to send you any T4A slips.