Self-employed? Make dollars and sense of your income tax return

Canada Revenue Agency & Staff
April 07, 2017
By Canada Revenue Agency & Staff
Self-employed? Make dollars and sense of your income tax return
Photo: Shutterstock
April 7, 2017 - When someone asks “Who’s the boss?”, you take pride in responding because, well, it’s you! But being self-employed means more than just having a good idea and the drive to make it happen: you also have to balance the books and fulfil your tax obligations with Canada Revenue Agency (CRA).

You already have the entrepreneurial spirit, but do you know how to get the most from your income tax and benefit return?

Claiming business expenses
From applying for your business licence and furnishing your office, to building a professional website and advertising your new venture, you may have to spend money to start making money. We have good news! When you’re self-employed, you may be able to deduct reasonable expenses you paid to earn income, such as vehicle costs, supplies needed to complete a job and office space expenses.

Have you converted part of your garage from a storage room into a workspace for your business? Do you use part of your home as your primary place of business, or to meet clients on a regular basis? If so, you may also be able to deduct some of your maintenance costs, such as heat, home insurance, electricity, cleaning materials and more. You may even be able to deduct some of your rent or mortgage interest.

To find out more, go to cra.gc.ca/selfemployed and select “Report business or professional income and expenses.” Also, visit cra.gc.ca/ smallbusiness and click “Business expenses”. You can also read CRA’s Income Tax Folio S4-F2-C2, “Business Use of Home Expenses”.

Registering for a GST/HST account
Generally, you are required to register for the Goods & Services Tax/Harmonized Sales Tax (GST/HST) once your business income exceeds $30,000 in four consecutive calendar quarters. Even when you aren’t required, registering could let you claim input tax credits on the GST/HST you paid on your business purchases and expenses.

This is an important benefit of owning a business and could put more money in your pocket. For more information, go to cra.gc.ca/gsthst. (Revenu Québec manages GST/QST in Quebec so, if that’s where your business is located, visit revenuquebec.ca.)

If you have business or professional income, use Form T2125 “Statement of Business or Professional Activities” to calculate and report your gross and net incomes on your income tax and benefit return. Wait! Before you fire up the shredder for a little Spring cleaning around the office, don’t forget you must keep all required records and supporting documents for six years after the last tax year to which they relate.

Completing your return
For most Canadians, however, tax returns are due April 30, 2017. Since this date is a Sunday, CRA will consider your return as filed (and any payment made) On Time when received/post-marked the next business day.

The legislated deadline to file an income tax and benefit return for self-employed individuals and their spouses is June 15. However, should you have a balance owing, the amount is still due no later than April 30.

Last year, more than 84% of individuals filed their returns online. To file your personal return online, you can prepare it using certified tax preparation software or web application. CRA has a list of certified tax preparation software on its website, including some that are free. To find out more, go to cra.gc.ca/netfile.

CRA’s “Auto-fill my Return” feature is available through some Netfile-certified software. This secure feature automatically fills in certain parts of your return. To use “Auto-fill my Return,” you must be fully registered for My Account at cra.gc.ca/myaccount. When you sign up for online mail, you can find out the status of your return immediately after filing, and receive your “Notice of Assessment” directly through the software the next day. For more information, visit canada.ca/express-noa.

Maybe you hired someone else to help you with your taxes. If you want them to interact with CRA on your behalf, make sure you formally authorize them as a representative, as CRA needs your consent. If you have a business number, go to cra.gc.ca and search for Form RC59 “Business Consent”. When you don’t have a business number and want to authorize a representative, you may need to complete an authorization for individuals. For more information, visit cra.gc.ca and look up “Authorize or cancel a representative: Individuals”.

Payment options and info at your fingertips
Unfortunately, not every year can be a winning year. If your business is facing cash flow problems—and you have a balance owing—you may be able to pay off your tax debt in more than one payment. Pre-authorized debit lets you set the payment amount and dates in advance for CRA to withdraw money from your account.

You can set this up by making a pre-authorized debit agreement through the CRA’s “My Business Account” or “My Account” service, or by calling 888-863-8657. To learn more about your payment options, go to cra.gc.ca/payments.

Grab your smartphone (iOS, Android or BlackBerry) and download the free CRA “Business Tax Reminders” app. It lets you create custom reminders and alerts for instalment payments, GST/HST returns and payments, and other tax-related matters so you avoid penalties and interest. With all of these services literally at your fingertips, it’s easy to stay on top of your tax affairs year-round.

You can also stay up-to-date by receiving email letting you know when your CRA mail is available to view online! Register for online mail through the CRA’s “My Account” or “My Business Account” at cra.gc.ca/loginservices. You can also register through the MyCRA and MyBenefits CRA mobile apps at cra.gc.ca/mobileapps.

Protect yourself from the underground
When it’s time to file your return, don’t gamble your reputation or your business by intentionally under-reporting your income. It’s important to keep yourself from flirting with the underground economy.

By avoiding taxes—if your clients suggest you do a job “under the table”—you put yourself at risk. If caught evading taxes, you could face penalties and jail time... maybe even lose your business. It’s that simple.

Under-the-table deals undermine the integrity of Canada’s tax system, and deprive us of funds for programs benefitting everyone. On the other hand, as the boss, when you pay your employees under the table, you rob them of the benefits for which they are eligible, like employment insurance, Canada Pension Plan payments, and workers’ compensation coverage. For more about the underground economy, go to cra.gc.ca/undergroundeconomy.

If you have ever made a mistake or an omission and would like to correct your tax affairs, you can find more information about CRA’s “Voluntary Disclosures Program” at cra.gc.ca/voluntarydisclosures.

Be sure to visit cra.gc.ca for a ton of information—including videos and recorded webinars on subjects raging from reporting business income and expenses to GST/HST information for new small businesses—that will help you report correctly and on time.

— With files from Canada Revenue Agency

* This article also appears in the April 2017 edition of Electrical Business Magazine. Check out our ARCHIVE page for back issues.

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