Duggal Professional Corporation

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CPA

Self-Employed? Learn How to File and Pay Your Taxes in Canada

When an individual begins to trade either a service or a good in exchange for money in Canada without an employer giving you any payment, the federal government will take you as a sole proprietor of that venture. In this scenario, you’re required to provide the Canada Revenue Agency (CRA) with income reports.

 

Self-employed individual working from home.

 

Calculating Taxes

Provincial taxes vary from region to region, and you will have to look into individual provincial policies to estimate that amount. Self-employed individuals are considered to have the same business and personal income and are taxed for the same.

 

A tax accountant’s calculator over yellow background in Edmonton.

Tax RateThere is no separate tax for the income you make from the business. This does not include either the Canada Pension Plan (CPP) or Employment Insurance contributions.

The CRA also allows you to deduct your taxes and a capable bookkeeper or accounting service can help you find out ways to capitalize on this.

Income tax

Here’s what you have to pay for income taxes in the 2021 tax year:

 

Calculating Taxes

Canadian Pension Plan (CPP) and Employment Insurance (EI) contributions

For self-employed individuals, the CPP amount is 9.9%, which applies for a range of $3,500–$55,300. Earnings under and over this amount do not count. EI contributions are optional for self-employed workers but it has several benefits.

Filing Taxes

Self-employed individuals are required to file Form T1 and Form T2125 for personal income and any business expenses respectively. You don’t have to pay any business income tax when you’re self-employed and working in Canada.

Form T1 and Form T2125

Business income of sole proprietors is also treated as their personal income, getting reported on the personal tax return, which is the Form T1. As dictated on Line 104 (“Employment income not reported on a T4 slip.”)

Form T2125 is used to explain all of your business activities that have taken place over the year.

T4A slips

When working with an independent contractor, you in this case, a client will send out a copy of Form T4A to the CRA that dictates the amount you were paid by them. Maintain a track record of all the clients you work with, along with any payments made to you using T4As.

GST, HST, and PST

If your net taxable income crosses $30,000, you can collect federal sales tax. Otherwise, you’re considered a Small Supplier by the federal government and cannot collect either GST or HST. You are required to keep track of net taxable income and apply for collection once you cross that figure.

The GST and PST are both combined and collected as the HST in some provinces as well.

Payment Methodology

Paper-based forms can be filled out and mailed to the CRA as well. But a faster way is to set up an account online and use the NETFILE service by the CRA. Apart from credit, debit and wire transfer, you can pay off in other ways as well.

Make sure you never miss out on your tax payments with the help of Duggal Professional Corporation. Offering you a wide range of financial solutions such as payroll services and full cycle accounting services.

Reach out to us today if you require a CPA in Edmonton.