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Many Canadians are capitalizing on a boom in freelance positions and side hustles to earn some extra income while enjoying the flexibility to set their own work guidelines and standards. 

However, one challenge for freelance workers is that any extra income they earn is subject to taxes. Freelance taxes in Canada apply to self-employed individuals, freelancers, and sole proprietorships.

Key Takeways

  • Freelancers in Canada are required to report their income to the CRA.
  • Freelancers can claim certain deductions on home office expenses and business expenses .
  • The deadline for filing freelance taxes in Canada is June 15th.

How Do Freelance Taxes In Canada Work? 

Regardless of the amount earned from your side hustle, you are required to report your income to the CRA when tax season comes around. By the definition of the law, any act of purposely not reporting income is considered tax evasion.

While it is unlikely that the CRA will come after you for very small amounts, it is better to be on the compliant side and abide by tax legislation. One day you might be earning more money so you may as well take the time to learn about how freelancers are taxed now when your income is small. 

Freelance Taxes In Canada: Filing Deadline 

The deadline for filing self-employment income to the CRA is June 15, 2024. 

You will be taxed on your net income which is your total income minus all eligible expenses. In addition to filing the T1 form, you will also be required to fill out the T2125 form which is the Statement of Business or Professional Activities. This form will outline all of your business activities including income and expenses. 

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Am I Considered A Business If I Do Freelance Work? 

There is no legal obligation to register a business for freelance work. Freelancers are considered self-employed and can create an invoice under their own name. 

However, if you choose to register as a business in the province you are operating in, the invoice must be made under your business name.

Freelance Taxes In Canada: Best Tax Tips

As a freelancer, there are certain things you should keep in mind when filing your taxes. These tips will help ensure you get the most from your tax return: 

Deduct What You Can

Depending on how your business is classified, different deductions may be available to you. Here are a few types of deductions you can claim as a freelancer: 

Expenses you can claim related to Airbnb Business: Money earned from Airbnb arrangements considered to be rental income will allow you to claim housing expenses. In this case, expenses such as mortgage interest, utilities, property tax, maintenance, and repairs are all eligible deductions.

Home Office Expenses: If you use part of your home to conduct your freelance business, then you may be able to claim part of your rent and certain expenses such as:

Note: However, one thing to keep in mind is that expenses will need to be prorated so that the amounts are proportionate with the part of your home that you use for your business. For example, if only 25% of your electricity usage was related to freelance work, then only 25% of the bill would be considered to be a deductible expense.

Don’t Forget To Make Your CPP Contributions

As a freelancer, you are required to deduct the CPP contributions when you have an income over 3,500. You’ll need to ensure you put aside both the employee and employer proportion of the contributions.

What about EI Contributions?

While EI contributions are mandatory for employees, freelancers and other self-employed individuals are not required to. EI contributions are completely optional. However, they are a good contribution to make if you want to receive certain benefits like maternity leave

Make Quarterly Tax Installments

For freelancers who earn more than $30,000, it is required that they register for a GST or HST account, once they surpass that threshold. To clarify, only freelance income is applicable toward this threshold and income from regular employment is not considered as part of the calculation.

If you pay annual taxes of more than $3,000 as a freelance worker, you’ll be required to pay your taxes in quarterly instalments. 

Keep Your Receipts And Be Organized 

Regardless of what type of freelance work you do, it is crucial to keep a record of all income and expenses. Expenses related to the course of carrying out your business can be deducted from gross income to allow you to save on taxes. For example, an Uber driver can deduct expenses on their vehicle from the money that they earn driving with Uber. 

There are numerous apps and online tools to help you keep a digital version of all your receipts and to help you track your business income and expenses.

Separate Your Freelance Business From Your Personal Finances

It is also highly recommended that freelance workers separate their business and personal finances. For starters, it can help your small business seem more legitimate to clients while allowing you to keep better track of business income and expenses. By separating the two, you can avoid the headache of having to sort through your personal spending to find business expenses when tax season comes around. 

Also, expenses are more easily justifiable to the CRA as there would be less confusion about what is a business deduction and what is a personal expenditure. 

Freelancer Tax FAQs

How much money should I set aside for my taxes?

Typically, the rule of thumb is that you should set aside 25% of your income for taxes. If you are in a higher tax bracket or collect GST/HST, then you may want to set aside a bit more, closer to 35%.

What if I have American clients?

Income generated from clients outside of Canada still needs to be reported to the CRA but these clients do not need to be charged GST or HST. However, it is recommended that foreign income be separated in the event of an audit.

Should I do my taxes myself?

You should consider working with a tax professional or accountant if you are new to self-employment or have complex income and expenses. Tax professionals and accountants can help minimize your tax payable and maximize the benefits that you are entitled to. However, understanding the taxation system in Canada is a powerful tool, especially as a self-employed individual.
Veronica Ott avatar on Loans Canada
Veronica Ott

Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.

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