Being a freelancer means working on your own time and at your own pace. The freedom that is associated with being self-employed is the number one element usually cited by freelancers as their favourite aspect of their work. Still, there are many legal constraints that must be considered for you to succeed. Here are some essential laws that every freelancer should know.

Business Registration Laws

Starting your freelance business can seem as simple as hanging an “open for business” sign on your front door, but that isn’t quite the case. In Canada, every province has laws that govern the registration of businesses. The legal structure of your business, such as a corporation or sole proprietorship, is a key element in determining your obligations. As a rule, and especially if you are doing business under a name other than your own, you have an obligation to register yourself and pay an annual fee.

For example, in Quebec, the Registraire des Entreprises is in charge of overseeing the application of the Act respecting the legal publicity of enterprises. In Ontario, the Business Names Act applies to all new businesses. In Alberta, it is Service Alberta that is responsible for the management of business names and registration.

Canada Pension Plan and Payroll Taxes

As a freelancer, you do not earn a salary in the legal sense of the word, so your reflex might be to think that payroll taxes do not apply to you. In some cases, such as unemployment insurance, that is correct. However there are several others that do apply. For example, under the terms of the Canada Pension Plan, you are required to contribute both the employer and employee component of the premium. You make this contribution when you file your income taxes.

Depending on a number of factors, this may represent approximately 10% of your business’ income, so it is not a negligible amount. Technically, this is not a tax since you receive a pension when you retire, but you still need to plan your cash flow accordingly. There are other, usually provincial, payroll taxes that apply to freelancers, so check on your local situation to avoid surprises.

Canada Pension Plan/Quebec Pension Plan and Payroll Taxes

As a freelancer, you do not earn a salary in the legal sense of the word, so your reflex might be to think that payroll taxes do not apply to you. In some cases, such as unemployment insurance, that is correct. However there are several others that do apply. For example, under the terms of the Canada Pension Plan/Quebec Pension Plan, you are required to contribute both the employer and employee component of the premium. You make this contribution when you file your income taxes.

Depending on a number of factors, this may represent approximately 10% of your business’ income, so it is not a negligible amount. Technically, this is not a tax since you receive a pension when you retire, but you still need to plan your cash flow accordingly. There are other, usually provincial, payroll taxes that apply to freelancers, so check on your local situation to avoid surprises.

Goods and Services Tax

The rule of thumb as far as the GST/HST is concerned is straightforward. If you make more than $30,000 annually in taxable supplies, you need to register for, collect, and remit the GST/HST, and QST in Quebec. What constitutes a “taxable supply” is somewhat murkier, but if you are selling goods or providing services in Canada, there is a good chance you will be subject to this law.

Before starting your freelance business, check with the Canada Revenue Agency to see if you need to register and find out the reporting requirements. You should also find out what provincial sales taxes may apply to your particular business.

References & Resources

• registreentreprises.gouv.qc.ca
• canadaone.com
• cra-arc.gc.ca