While there are many benefits to being self-employed, there are also some downsides. One, in particular, is filing your taxes as a self-employed person.
While you simply get a T4 slip when you are an employee, you don’t get that same luxury as a self-employed individual. Most self-employed individuals must complete the T2125 form, among other forms, to do their taxes.
As a result, doing your self-employed taxes in Canada can be a little bit more complex to deal with than if you were an employee.
Key Takeaways
- As a self-employed individual, you’ll need to file a personal tax return (Form T1 – Income Tax and Benefit Return), and a business tax return (Form T2125 – Statement of Business or Professional Activities).
- June 17th, 2024 is the tax filing deadline for self-employed individuals as June 15th falls on a Saturday this year.
- As a self-employed individual, there are many tax expenses you can deduct on your tax return.
Are You Considered Self-Employed?
A self-employed individual is anyone who has their own business or trade as a sole proprietor or contractor.
As a self-employed individual, you’re responsible for all the taxes and deductions including federal taxes, provincial taxes, CPP contributions on both the employee and employer side and EI contributions (If you opt for it).
Depending on the nature of your services and the location of your clients, you may also need to charge and remit GST/HST.
In general, you should save about 25-30% of your annual income for income tax purposes. You may also be required to pre-pay in installments ahead of the filing deadline.
How To File Your Taxes As A Self-Employed Individual?
| Online | You can use NETFILE-certified tax software to file online. If you file online, you can expect your tax refund (if applicable) faster. |
| Tax Specialist | You can also use a tax specialist to file your tax return through the CRA’s EFILE service. |
| Paper Application | If you file a paper tax return, it could take as long as 10 to 12 weeks for it to be processed. |
Documents Required To File Your Self-Employed Taxes In Canada
To file your income taxes as a self-employed person, you’ll need three main forms:
Form T1 – Income Tax and Benefit Return
As a sole proprietor, your business income is treated like personal income, which means you’ll need to report on the T1 form. Your self-employed income is listed on Line 104. This form is also where personal deductions are reported.
Do you know what is line 10100 on your tax return?
Form T2125 – Statement of Business or Professional Activities
In addition to reporting your income on Form T1, you’ll also need to file a business return using Form T2125. This lets the CRA know about your business activities throughout the tax year. This form is also used to list your deductible expenses for your business.
T4A – Statement of Pension, Retirement, Annuity, and Other Income
If you work as an independent contractor, your clients will complete and submit Form T4A to the CRA when they file their taxes. This form allows your clients to report how much they paid you. Each client you work with will also send you a T4A, which will tell you how much you earned from each client.
Your clients have until the end of February of the following year to send you your copy. But even if they don’t, you’ll still be obligated to ensure this information is recorded so that it can be accurately reported on your Form T1.
Self-Employed Taxes Canada: Filing Deadlines 2024
Self-employed Canadians have an extra month to file their taxes for the 2024 tax year compared to employees. While individuals have until April 30, 2024, to file their taxes, the deadline for self-employed Canadians is June 17, 2024, as June 15 falls on a Saturday this year.
| Note: Since the 15th lands on a weekend, the deadline is pushed to the next business day, June 17th, 2024. |
How To Calculate Your Self-Employed Taxes Canada
As a self-employed individual, the tax rate you pay is the same for all your business earnings and personal income. The tax rate you are charged depends on your income level, as outlined in the chart below:
| Federal Tax Rate | Federal Income Tax Brackets |
| 15% | Applicable to taxable income up to $57,375 |
| 20.5% | Applicable to taxable income over $57,375 up to $114,750 |
| 26% | Applicable to taxable income over $114,750 up to $177,882 |
| 29% | Applicable to taxable income over $177,882 up to $253,414 |
| 33% | Applicable to taxable income over $253,414 |
That said, you’ll need to make Canadian Pension Plan (CPP) contributions for both the employer and employee side. If you so choose, you can also make Employment Insurance (EI) contributions, though this is optional.
How Much Money Do You Need To Put Aside For CPP Contributions?
The contribution rate for CPP is 11.4%. 9.9% for the base rate and 1.5% for the CPP enhancement. As a self-employed individual, you must pay the full amount.
Your CPP contributions are based on your net business income and the maximum you must contribute is $6,999.60.
Do you live in Quebec? Find out about your QPP contributions.
What Can You Do If You Can’t Pay Your Taxes?
Request Taxpayer Relief
If you’ve gone through serious financial hardships or life events, you may be able to have any late penalties and interest charges waived for not paying your taxes. This will give you some flexibility and time to pay your taxes.
Make A Payment Arrangement With The CRA
If you’re unable to cover the cost of your taxes, you can ask the CRA to create a payment schedule for you. This will allow you to pay your taxes in installments instead of one lump sum payment. Depending on your circumstances, you may be eligible to pay your taxes over 5 years (plus tax and fees).
Use A Personal Loan
If you’re unable to make an agreement with the CRA, consider taking out a personal loan. You can not only spread the costs of your tax payments over a few months to several years but also consolidate other debts with it. Consolidating high-interest debt into a low-interest personal loan can save you a lot of interest over time.
To get the best rates your overall financial health should be good, this includes your income, debt and credit score. If you’re unsure of your credit score, be sure to check it and improve it, if it’s low. You can easily check your credit score for free with numerous platforms such as Compare Hub.
Do Self-Employed Individuals Have To Make EI Contributions?
As mentioned earlier, EI contributions are optional for self-employed Canadians. However, there are certain perks to EI contributions that you may want to consider before opting out, such as the following:
- Maternal leave or Parental leave
- Adoptive leave
- Sick leave
- Benefits of caring for sick children
Expenses You Can Deduct On Your Self-Employed Taxes In Canada
As a self-employed person, there are certain deductions you can make to lower your taxable income amount and pay fewer taxes overall, such as:
Business Expenses
Money spent to operate your business is considered a business expense, which can be claimed as a deduction on your tax return. The following are some business expenses you can claim:
- Start-up costs (such as interest on funds borrowed to start your business)
- Advertising costs
- Delivery/shipping fees
- Professional fees (such as legal, tax, or accounting fees)
- Office supplies
- Communication equipment costs (such as telephone, mobile phone, and internet fees for your business)
- Utility fees
Find out if a business loan is tax-deductible.
Vehicle Expenses
If you use your vehicle exclusively for business purposes, you can deduct all expenses associated with the vehicle, such as:
- Insurance
- Gas
- Maintenance and repair
- Parking
If you use the vehicle for both business and personal reasons, you can deduct a percentage of these expenses based on how frequently the vehicle is used for business purposes. For instance, if you drive your car 20,000 km a year and 10,000 km of that is used for your business, you can deduct 50% of your vehicle expenses from your income.
Office And Home Office Expenses
If you rent your home and use part of it for your business, you can deduct part of the rent and other related expenses on your tax return.
If you work out of your home, you can deduct your home office expenses as well. So long as you use the space regularly as your principal place of business, you can deduct expenses such as:
- Heating
- Electricity
- Home insurance
- Property taxes
- Mortgage interest
To calculate how much you can deduct, you’ll need to use a reasonable calculation. One includes taking the size of your home office and dividing it by the square footage of your entire home.
For instance, if your home is 2,000 square feet and your home office is 150 square feet, your office is roughly 7.5% of your home. That means you can deduct 7.5% of your mortgage interest or lease, utilities, insurance, repairs, and other related fees on your income tax return.
