Working as a freelancer is very popular.  The money earned is, of course, taxable, no matter how little.  Failure to declare this income will mean a 10% fine on the amount you concealed.  The good news is that the Canadian Revenue Agency (CRA) has provided all the tools you need on their website.  Here is an overview. 

Preliminaries

If you start with the basics, it all becomes considerably simpler at tax time.  First, you need to decide whether you will work under your own, legal name.  If so, then you do not need to register as a business.  However, if you want to work under a company name, you will need to register as a business name and open a separate bank account in that name.

In either event, you will need to keep an ongoing record of all income and expenses.  This could be as simple as an Excel spreadsheet or one of their templates.  There are also a number of good programs available for small business enterprises.   

Keep a folder (either paper or electronic, or both) of all receipts. 

Expenses

The CRA allows the deduction of certain expenses to offset the amount of revenue.  There are actually a lot of items that fall into this category.  Check the website to review, but here are some of the more common ones:

• Supplies and equipment. This will include any new laptop, upgraded equipment like microphone or scanner. You can also include marketing items like online ads or flyers.

• Phone. It would probably be best to have a phone dedicated to the freelancing so that you can track any charges.

• Travel. If you need to travel to see a client, you can deduct the gas cost or train ticket. You can also charge the meals while out of town.

• Professional Associations. This will include charges incurred when attending a conference.

Budget

With every payment you receive, reserve 25% to cover the annual taxes due.  If you do it as an ongoing chore, you won’t be surprised at the end of the year, and you will have the cash reserves to cover any taxes. 

Taxes

You will need to continue to complete a T1 but as a freelancer you will need to add a T2125 to provide the detailed list of income and expenses.  You will need to include your spreadsheet and receipts with the filing. 

You may be subject to Goods and Services Tax (GST), which is federal taxation on Canadian goods and services.  The Harmonized Sales Tax (HST) and Provincial Sales Tax (PST) are provincial levies similar to GST.

However, you also get to claim a credit on all GST/HST that you paid in order to run your business.  Just remember that it is critical that you file regular GST/HST forms and pay those fees. 

If the gross (total amount before deducting expenses) business revenue is less than $30,000 for the tax year, the business is exempt from the GST/HST.  Check the CRA website for more information. 

If you have any concerns, contact the CRA or consult with an accountant about the best choices for you and your freelance business. 

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team