Self-employment has some exciting benefits, including a flexible schedule and the freedom to select your projects. It also comes with big responsibilities, especially at tax time. When you’re self-employed, the burden of reporting, filing, and paying taxes falls entirely to you. If you want to streamline the process, it’s a good idea to get familiar with the Canadian Revenue Association’s (CRA) required self-employment tax forms. With that understanding, you can organize your finances, keep great records, and make tax filing a breeze.
Who Needs to File Self-Employment Taxes?
When you’re self-employed, your business income is part of your personal tax return. That means that you pay the personal income tax rate rather than a corporate tax rate. The CRA considers you to be self-employed if your business is:
- A sole proprietorship
- An unincorporated partnership
- An unincorporated limited liability partnership
- An unincorporated general partnership
If you’ve incorporated your business, you’re no longer self-employed. Instead, you work for the corporation.
Finding Self-Employment Income With Form T4A
When you work for an employer, you receive a T4 slip at tax time. This slip tells you how much you earned throughout the year and provides you with the number you need to fill out your T1 return.
When you’re self-employed, things are a bit different. If you’re an independent contractor, look out for Form T4A, the Statement of Pension, Retirement, Annuity, and Other Income. Each of your clients should send you this form at the end of the year. T4A slips include the total dollar amount for each job. To figure out your total income, simply add the amounts from each slip.
What Happens if You Don’t Receive Form T4A?
Don’t worry — Not all self-employed people receive a T4A slip. If you’re selling products directly to consumers, for example, your customers won’t send you a T4A slip. Clients can forget to send the T4A to independent contractors, or you might lose the form after it arrives.
Regardless, the CRA expects you to file and pay self-employment taxes. That’s why it’s important to keep accurate records. Throughout the year, you can track the income for each job or sale using a program such as QuickBooks Online. You can also scan in receipts, invoices, and other proof of income. When tax time rolls around, simply run a report to find out your total income.
Calculating Gross and Net Self-Employment Income Using Form T2125
As a self-employed person, you need to fill out Form T2125, the Statement of Business or Professional Activities. This form helps you calculate your gross income, which is the total amount of money you brought in during the year. It also helps you figure out your business expenses, which you can deduct from your gross income to lower your taxable income so you pay less in income taxes. When you’re self-employed, these deductions can have a big impact on your bottom line.
On Form T2125, expect to provide the following details:
- Information about your business, including a description of your products and services
- Income that comes from internet business activities, such as affiliate sales or ad traffic revenue
- Business or professional income
- Goods and Services Tax (GST)/Harmonized Sales Tax (HST) you paid
- Costs paid while making and selling goods
- Business expenses
- Expenses you paid while running a business from home
- Information about your business partners (where applicable)
After you complete Form T2125, you know your net and gross incomes for the year. Use these numbers to fill out your T1 tax return. You should fill out a separate T2125 for each business you run. If you sell crafts on Etsy and also provide writing services, for example, you should fill out two different T2125 forms.
Where to Report Self-Employment Income on the T1 Return
Once you’ve completed Form T2125, you’re ready to complete your T1 return, the personal income tax return. As a self-employed person, your business income is the same as your personal income, so you’re required to fill out one return.
Place your gross income, which you calculate in part 3C of Form T2125, in lines 162-166 of Form T1. Your net income, which you calculate in part 5 of Form T2125, goes into lines 135-139 of Form T1. If you are also employed at a traditional job, you need to report your standard income on line 101 of the T1 return.
Do You Need to File a GST/HST Return Form?
Is your business making more than $30,000 per year? If so, the government requires you to register for a GST/HST number, collect GST/HST, and file the appropriate return. You can file your GST/HST return using Form GST34. The CRA mails you this form, either by email or traditional mail.
The deadlines for GST/HST returns vary depending on how frequently you pay.
- Monthly: File and pay by August 31
- Quarterly: File and pay by April 30
- Annual: File and pay by November 30
- Annual with a fiscal year that ends on December 31: Pay by April 20, file by June 15
In most cases, the government prefers that you file GST/HST returns online. Once you file your first online return, the CRA sends future forms by email to streamline the process.
Deadlines for Filing Self-Employment Tax Forms
Most Canadians need to file their taxes by April 30 of each year. If you’re a full-time, self-employed professional, you’re eligible for an extension and can file your taxes up until June 15. However, you should still pay any taxes you owe by April 30. If you work for another company as a traditional employee, even part-time, you need to file your T1 return by April 30. If you prefer to file online, you can do so beginning on February 26.
Your clients have until the last day of February to send out T4A slips for the preceding year. These forms can be sent by email, if you have agreed to electronic delivery. Otherwise, clients send T4A slips through traditional mail or in person.
Government Tax Resources for Self-Employed People
The government offers a variety of resources to help you file your self-employment taxes. For basic information about filing your Canadian taxes, look to the “Doing Your Taxes” government guide. This guide provides step-by-step assistance for filing income tax and benefit returns. It can also tell you if you’re eligible for a free tax clinic that provides help with filing.
Guide T4002 helps you work through Form T2125. This is especially useful in determining the difference between business and professional income. It also helps you understand special tax circumstances that apply if your business is fishing or farming. Need to figure out how to pay your taxes? The Make a Payment tool helps you determine the best method for your business.
Filing your taxes might seem intimidating as a self-employed person, but there’s no need to worry. As long as you track your expenses and fill in Form T2125 carefully, you can maximize your deductions and stay compliant with CRA rules. The QuickBooks Self-Employed app helps freelancers, contractors, and sole proprietors track and manage your business on the go. Download the app today.