Frequently Asked Questions From The Self-Employed
- Do I really need to fill out a T2125?
Yes. Even if you are a student with a summer job that paid you as a contractor, you should still report the income on a T2125 Form and claim reasonable business expenses. It may be tempting to enter the income on Line 104 (other employment income) but this is not correct.
- Can I pay myself a salary?No. Unless you are incorporated, you are required to report all the income you earned from your business during the calendar year. You cannot carry forward income to future years.
- Do I need a business number?No. You do not need a business number to report business income on a T2125 Form. This form records your business income and expenses as part of your personal return. And you need to pay CPP premiums if you earned more than $3,500.
- Can I have losses?Yes. You can have losses on your business that can be used to offset other income. If the losses exceed your income from other sources, you have a non-capital loss which can be carried forward to years when you have more income. The CRA will not expect your new business to make money right away but there should be a reasonable expectation of profit in future years.
- Do I need receipts?Yes. Even though you do no send your receipts with your tax return, keep really good records. Self-employed Canadians are more likely to be audited, so make sure you keep your receipts and other documentation to support your business expenses. And the expenses must have been incurred to help you earn your income.
- Can I use a flat rate for business mileage?No. If you use your car for business, you must keep a mileage logbook. There is a new simplified method for self-employed taxpayers but you are required to keep a logbook for a year before you can use it. If you do not have a logbook and claim business mileage, your claim may be reduced or disallowed.
- Do I have to make installments?Yes, if you want to avoid interest charges. If you have tax owing in any two of the last three tax years, the Canada Revenue Agency will ask that you make quarterly installments and not an annual payment. Failing to make installment payments could result in interest charges.
- Do I need a GST number?No. If your annual revenues are more than $30,000, you have to register for the GST/HST. However, even if your revenues are less than this, it is usually helpful to register so that you can claim input tax credits for the GST/HST you pay.
A small business tax specialist with H&R Block, can discuss tax tips for small business owners and self-employed Canadians.
This list is compiled based on my discussions with a tax adviser at H&R Block Canada who has sponsored this blog post. The information provided here is a general list for information purposes. Taxes vary among individuals so always consult a tax professional for certainty. I invite you to visit hrbtaxtalk.ca to view tax queries posted by others or post your own question. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this bulletin can be accepted by H&R Block Canada, Inc. or Larkycanuck.com
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