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 fulfill your tax obligations with the 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?
From applying for your business licence and furnishing your office, to building a professional website and advertising your new venture, you might have to spend money to start making money. We have good news! You can claim reasonable expenses you paid to earn income. This reduces how much income tax you have to pay and leaves more money in your pocket to reinvest in your business. To learn more, go to cra.gc.ca/selfemployed.
If you use part of your home as your primary place of business or to meet clients on a regular basis, 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 learn more, go to cra.gc.ca/smallbusiness and click “Business expenses.” You can also read the CRA’s Income Tax Folio S4-F2-C2, Business Use of Home Expenses.
Registering for a GST/HST account
Not sure if you need a goods and services tax/harmonized sales tax (GST/HST) account? Go to cra.gc.ca/gsthst to find out if you have to register for one. Even if you don’t have to register, you may decide to register so you can claim input tax credits on the GST/HST you paid on your business expenses. Revenu Québec manages GST/QST in Quebec, so if your business is in Quebec, go to 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 income on your income tax and benefit return. Before you fire up the shredder for a little spring cleaning around your office, don’t forget that you must keep all required records and supporting documents for six years after the last tax year they relate to.
Completing your return
The legislated deadline to file an income tax and benefit return for self-employed individuals and their spouses is June 15.
Under legislation, if you have a balance owing, you have to pay that amount no later than April 30. Since this date is a Sunday in 2017, the CRA will consider your payment as being on time if the CRA receives it or it is postmarked no later than midnight on May 1.
When it’s time to file your return, don’t risk your reputation and your business by intentionally underreporting your income. If you get caught evading tax, you may face fines, penalties, or even jail time. It’s not worth the risk. Don’t participate in the underground economy. For more information, go to cra.gc.ca/undergroundeconomy.
CRA online services and apps
This year, you can file online starting February 20. The CRA offers a list of certified tax preparation software on their website, including some that are free. Last year, more than 84% of individuals filed their returns online. To find out more, go to cra.gc.ca/netfile.
The 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. If you sign up for online mail, you can find out the status of your return immediately after you file your return and receive your notice of assessment directly in the software the next day. For more information, go to canada.ca/express-noa.
Maybe you hired someone else to help you with your taxes so you can focus on your business. If you want them to interact with the CRA directly on your behalf, make sure you formally authorize them as a representative. The CRA needs your consent to deal with a representative for anything related to you. If you have a business number, go to cra.gc.ca and search for Form RC59, Business Consent. If 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, go to cra.gc.ca and look up “Authorize or cancel a representative – Individuals.”
If you owe tax or have to pay tax by instalments, take advantage of pre-authorized debit. This service lets you set the payment amount and dates in advance for the CRA to withdraw money from your account at a financial institution. A bad year can challenge your cash flow. If you are unable to pay all of your balance owing, you might be able to set up a payment arrangement using pre-authorized debit. To learn more about your payment options, go to cra.gc.ca/payments.
Grab your iOS, Android, or BlackBerry device and download the free CRA Business Tax Reminders app. This app 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 at your fingertips (literally!), 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.
The CRA has webpages for small businesses with examples of tax scenarios that may apply to your situation. Go to cra.gc.ca/smallbusiness for everything you need to know about reporting your income and expenses and registering for GST/HST and payroll accounts. And check out the checklist for new small businesses. The CRA also has a series of videos for small businesses at cra.gc.ca/videogallery. If you’ve gone through the website and still need help, you can call 1-800-959-5525 to speak with a CRA agent.