Freelance Taxes for Canadians

Ever since I started my side hustle, freelance taxes has been a major concern for me. I say major because I absolutely hate taxes. Despite the fact that I have a decent understanding of taxes, I just seem to have an irrational fear about them when tax season rolls around.

Freelance taxes for Canadians applies to small businesses, freelancers, and self-employed individuals. All of the information you need can be found on the Canadian Revenue Agency website, but this post is meant as a quick overview when it comes to taxes for freelancers.

freelance taxes for Canadians

Should I be filing taxes as a freelancer?

Yes, of course you should. As soon as you start making any side income, you’re required to report it to the CRA. Even if you’ve only made a few hundred dollars, you should still report it as not doing so would be considered tax evasion. It’s unlikely the CRA will come after you, but that’s not something I would take a chance with.

There’s no legal obligation to register your business as long as you’re invoicing under your own name. If you prefer to invoice under your business name, then you are required to register your business name in your province. But to be realistic, your clients will most likely not care how you invoice them as long as they know who they’re paying.

Keep in mind that you need to keep a record of all of your income and expenses that relate to your business. I use a spreadsheet to track all my income and expenses and keep a small divided folder for paper receipts. There’s also an app available which I’ll detail below.

Filing taxes as a freelancer

As a general rule, you should always set aside 25% of your income for taxes (set aside more if you’re in a higher tax bracket and/or collect GST). You’re taxed only on your net income which is your total income minus all your expenses. Look for lines 135-143 on your tax return for self-employment income or lines 162-170 for gross self-employment income.

You’ll also need to fill out the T2125 form. This form is a statement of your business activities which covers your income and expenses. A full list of expenses you can claim is listed on the CRA website but generally speaking, you can deduct any reasonable expenses that are related to the cost of your business. For casual freelancers, the following are things you’ll want to claim as expenses.

  • Advertising
  • Cellphone and Internet bill
  • Meals and entertainment
  • Office supplies
  • Travel

Note that personal use of any expenses cannot be claimed. So if you use your home internet only 20% of the time for freelance work related assignments, you can only claim 20% of your bills.

If these deductions are making your head spin, don’t worry, there’s a simple solution to make your life easier. TurboTax solutions for Self-Employed walks you through the tax filing process while prompting you with self-employment questions. This ensures you get every business deduction you’re entitled to which in turn means more money in your pocket.

GST/HST Registration

Freelance taxes remain relatively simple when your income is less than $30,000 since you’re still considered a small supplier. As soon as you pass that threshold, you must register for a GST or HST number. The CRA isn’t keeping tabs on you. It’s totally on you to keep track of your income and to register when you need to – if you don’t, you’ll be penalized later.

Once you have your HST number, you’ll need to start collecting taxes. What you charge depends on what province the business you’re charging has their tax base. For example, although I’m based in Toronto and I do work for a company based in Quebec, I charge them GST of 5%. You don’t need to charge companies based outside of Canada any taxes since they are zero-rated according to the CRA

Once you’ve registered for your HST number, you can choose the quick method when it comes to reporting the taxes you’ve collected. This method mainly benefits service-based freelancers since it’ll simplify things when you’re doing your taxes. Regular small business may want to stick to the traditional methods to maximize their credits.

Also, note that if you owe more than $3,000 in taxes in a year, the CRA will require you to start paying your taxes on a quarterly basis.

Keeping track of your expenses

For the longest time, I tracked everything manually in Excel, but that’s because I happen to like spreadsheets. Admittedly, this takes up a lot of time, so I recently tested out QuickBooks Self-Employed which is a mobile app for Android and iOS.

As the name implies, it’s built for people who are self-employed and comes with features that make tracking your expenses easier. You can connect the app right to your bank and with a quick swipe, you determine if expenses are personal or for business. What I like is how you can set categories which are based on the T2125 form from the CRA. That’s the form used to claim your self-employed expense so you can see why things instantly become easier to track.

Other features that the app has that will appeal to freelancers include the automatic mileage tracker, the ability to take pictures of your receipts directly within the app, and expected taxes which is based on your income and expenses.

Note that connecting the app to your bank technically voids your consumer protection, but Intuit (who developed QuickBooks Self-Employed and owns Mint) use bank-level encryption so your security is their number one priority.

Final word

This post is meant as a quick taxes for freelancers quick guide. Handling your freelance taxes can become complicated pretty quickly which is why I recommend hiring a professional to help you with them. A good accountant won’t cost you that much and there’s a pretty good chance that the money they save you on taxes, will cover the fee you’re charged.

By | 2018-04-02T11:16:05+00:00 November 2nd, 2017|My Money, Personal Finance|

55 Comments

  1. Vito March 3, 2017 at 11:01 pm - Reply

    Any good Accountants you might recommend that are not “breaking the bank” expensive? Looking for a new one.

    • Barry Choi March 3, 2017 at 11:17 pm - Reply

      Any accountant that doesn’t work for H&R Block will probably be fine.

  2. Stacey March 6, 2017 at 11:43 am - Reply

    Would an Uber driver count as a freelancer?

  3. Alastair Mills-McEwan March 28, 2017 at 10:29 am - Reply

    For keeping track of income and expenses, linking to bank accounts automatically, reporting ability, receipt handling (imaging via an app), I wholeheartedly recommend Wave Accounting ( https://www.waveapps.com/ ). Browser based, Canadian and FREE. It also has excellent customer service.

  4. Alastair March 31, 2017 at 9:43 am - Reply

    I also forgot to add that SimpleTax.ca is an excellent browser based application for personla tax returns. Easy to use, intuitive, helpful. They make no charge but do accept voluntary donations. I used it for the first time this year and it is excellent.

    • Ryan January 31, 2018 at 1:42 am - Reply

      I second this. It’s an amazing tool – super simple and well designed! Have been using it since I started working.

  5. susan September 3, 2017 at 3:50 pm - Reply

    Good post. You cover the whole range of business (not just taxes). A couple of notes. Meals and entertainment – you can only claim 50% of the expense and you can’t claim any expenses for your own “lunch on the run”. So those Mcdonalds and Timmy receipts can be problematic. And entertainment includes giving away sporting tickets or bottles of wine. 50% is what you can claim.
    As for GST/HST sometimes registering before you hit $30K is a good PR move. If you are not registered then your customer knows you make less than $30K (or your a crook) and that may not be the message you want to send a customer.

    • Barry Choi September 3, 2017 at 4:30 pm - Reply

      Susan,

      I actually do a lot of my business meetings at McDonald’s where me and a client just have a coffee or snack while discussing business so I believe that counts as a business expense. Now if I were just getting a big mac on my own for lunch, that totally wouldn’t be cool by the CRA. Interesting point about registering before $30K as a PR move, makes sense.

  6. Natalie November 30, 2017 at 1:12 pm - Reply

    Can I confirm I understand correctly? If you make under $30,000 you do not need to register for an HST or GST number. And you should therefore, not charge sales tax on your invoice? Thanks for your post.

  7. Kaylee December 4, 2017 at 1:41 pm - Reply

    Does the fact that you’re doing many unrelated jobs change anything for a freelancer? I’m thinking about doing editing services, personal training and make up artistry, and I’m assuming that would still be a combined income for tax rules, but I don’t know if I’d need to report expenses separately. Thanks!

    • Barry Choi December 4, 2017 at 2:43 pm - Reply

      Hi Kaylee,

      You’re correct, you can combine everything but there are a few examples when it comes to things you can deduct as an expense. For example, you could claim makeup as a business expenses for your make up artistry but not for say personal training. You could also combine some expenses e.g. if you need a new laptop for all of your freelance side hustles, you could claim a reasonable portion for all 3.

      • Kaylee December 4, 2017 at 5:31 pm - Reply

        Oh okay awesome, thank you!

  8. Gabriela January 4, 2018 at 8:41 pm - Reply

    Hello:) im a graphic designer and i want to start working as a freelancer.

    Im in montreal and i have a 20 hours per week permit.

    I would love to know how can i invoice to my clients and how much do i need to give to the government.

    I would love the help cause i want to do everything in the correct way.

    • Barry Choi January 4, 2018 at 9:00 pm - Reply

      Hi Gabriela,

      I’m assuming you’re on a student visa which is why you’re only allowed to work 20 hours.

      You would need a Social Insurance Number which you likely will be able to apply for on campus.

      You invoice your clients based on your rate, but just make sure your work does not exceed 20 hours a week. Since you’re in Quebec, you wouldn’t need to apply for a GST number unless you make more than $30,000 in a year.

      As for taxes, you would file a return like everyone else, you just need to keep track of your income and expenses. I recommend setting aside 25% of your income for your eventual tax bill.

      It’s also worth seeking out the services of an accountant when you’re ready to file your taxes.

  9. Gabriela January 4, 2018 at 9:03 pm - Reply

    Perfect!! Thanks for everything Barri, youre amazing!!

    Last question, what about the SIN number?? Do i need to have one to do my taxes at the beggining of each year?? Let me know.

    • Barry Choi January 4, 2018 at 9:06 pm - Reply

      The SIN number allows you to legally work in Canada.

      April 30th is traditionally the due date for the previous year’s taxes. So April 30, 2018 would be the due date for your taxes from the 2017 calendar year.

      In your case, any work done in 2018 wouldn’t need to be reported until the due date of April 30, 2019.

  10. Aboud February 12, 2018 at 5:52 pm - Reply

    “You don’t need to charge companies based outside of Canada any taxes since they are zero-rated according to the CRA”

    Thank you, you wouldnt believe how hard it is to get an answer to something like this. I have alot of clients who are outside of Canada. If I had to charge them 15% GST it would make me very uncomptetative on the freelance market. Thanks for clarifying.

  11. Annie March 12, 2018 at 6:50 pm - Reply

    Hello!

    I am a college student, and during the summer of 2017 I did some freelance work. I made less than $500 during this time period, but donated all of the money to charity. The problem is that the charities are american, and this makes the tax deductible donations part really confusing, so I’m not sure if I should report the donations for simplicity’s sake.

    I did earn at least half of the revenue from US clients, though.

    I’m just wondering if I need to report income for freelancing this year, because I didn’t earn any revenue myself? I can’t even set aside 25% of the money I earned because I donated it. (I also read somewhere that if your expenses exceed your revenue on hobby income, you don’t need to report the tax.)

    Thank you so much!!

    • Barry Choi March 12, 2018 at 8:08 pm - Reply

      Hi Annie,

      Generally speaking with charitable donations, you would need a receipt to be able to claim that on your expenses. In other words, you shouldn’t report it.

      You should still report the income, but since it sounds like you didn’t earn much of an income, the odds are that it won’t affect your taxes much.

      • Annie March 12, 2018 at 9:39 pm - Reply

        Hi Barry!

        Thank you so much for the quick answer!!

        I have 1 more question, if it’s alright: if I do have the donation receipts, would I be able to file them as an expense?

        • Barry Choi March 13, 2018 at 5:58 am - Reply

          Hi Annie,

          There’s a section when filing your taxes where you would input your donations. If it was in USD, just check the exchange rate for the date the receipt was issued. Historical exchange rates are available on xe.com

  12. Mamdouh March 23, 2018 at 4:02 pm - Reply

    Thank you for such an amazing article.

    I am filing for the first time and I was told that even my income still doesn’t qualify for paying income tax, I still need to pay for the CPP( Canada pension plan) as I am considered self-employed.

    Does that apply for freelancers? Or did I get the wrong advice?

    Thanks.

    • Barry Choi March 23, 2018 at 4:23 pm - Reply

      Mamdouh,

      CPP Payments are based on an income range. You’ll be prompted when you start filing and the software you use will do all the math on the backend so you don’t need to worry.

      https://turbotax.intuit.ca/tips/can-i-get-a-pension-on-self-employment-6404

      • Mamdouh March 23, 2018 at 4:54 pm - Reply

        Barry,
        Thank you so much for the super quick response to my comment.

        I tried to do that and it showed that I have to pay a couple of hundred dollars for CPP, so I just wanted to be sure I am doing the right thing.

        I wasn’t sure if it applied to freelancers as well.

        So, basically a freelancer is treated exactly as a self-employed, with no differences. Is that correct?

        • Barry Choi March 23, 2018 at 4:59 pm - Reply

          Mamdouh,

          Correct, freelancers and self-employed are the same thing so what you owe in CPP is accurate.

          • Mamdouh March 23, 2018 at 5:17 pm

            Thank you.
            Much appreciated.

  13. Jo March 25, 2018 at 3:17 pm - Reply

    Thanks for this amazingly informative article! I too have an irrational fear of taxes but I’m trying to learn as much as I can in the hopes that one day, this will no longer incite fear in me.

    I have a bit of a unique situation/question: I have a full-time job from which I work from home, and then I have a side hustle from which I also work from home. If I am partially reimbursed for cellphone and internet through my full-time job, do I still claim a portion through the side hustle? What about other home office related expenses? I.e. workspace, supplies, etc… do I only claim once (through my full-time job), or do I claim two percentages (i.e. 50% full-time job, 10% side hustle) and leave 40% unclaimed for personal use? Thanks so much in advance!

    • Barry Choi March 25, 2018 at 7:38 pm - Reply

      Jo,

      You would claim the two percentages assuming they are separate. You can’t claim the same thing twice. Let’s for argument’s sake, your work buys you printer cartridges and they reimburse you at 100%. Well, you couldn’t then say you use your printer for side hustle purposes and claim 10% again. Does that make sense?

      • Jo March 27, 2018 at 1:25 pm - Reply

        Thanks for the reply, Barry! That definitely makes sense that you couldn’t claim a total of more than 100% for your supplies. I was more referring to the business-use-of-space claims like utilities and internet charges. I believe it’s calculated by percentage based on the amount of physical space your home office takes up in your home… but if you use that same home office for a full time job as employee, as well as part-time self-employed, I think it makes sense that you could claim those separately based on the percentage of time the space is used for various types of work… right?

        • Barry Choi March 27, 2018 at 1:30 pm - Reply

          Jo,

          Yeah the CRA is a bit weird, you technically need to measure your space, but it’s not like anyone really expects you to bust out your measuring tape. Let’s say your company is just reimbursing you for supplies but not your working space which is 10% of your home. You could still claim the full 10% as a home office space since that’s what you’re actually using it for. Now if your company is reimbursing you for that space, then don’t claim it on your own.

          At least that’s the way I understand it.

  14. DonnaW March 26, 2018 at 6:01 pm - Reply

    I don’t think this is completely correct. Line 104 is for employment income where no T4 is issued. This means you are employed by a company in some capacity, are considered an employee, and they deduct any applicable taxes, CPP, etc from your earnings if you earn enough.

    Self-employment must be entered on the applicable Lines 135-143 (and gross self-employment income on lines 162-170).

    I have done casual contract work for a company for many years now. The company sets the hours, provides the materials, sets the hourly pay rate, dictates the processes that must be used and recently started sending me a T4A slip each year. I have no control over anything except how well I perform the work. To me, this did not mean self-employment since I had no control over any of this and could not increase my earnings or hours of work.

    I was entering this income each year on Line 104. CRA deemed this work is considered independent contracting and is self-employment since the employer does not deduct any tax or CPP and I do not have any other benefits from the company.

    CRA advised me that those earnings cannot be entered on Line 104 but must be entered on Lines 135-143 as self-employment. (The box on the T4A slip has changed names over the years and is currently called Fees for Services. The slip and the tax return guidebook both state that this must be entered under self-employment income.) I was informed by CRA that any income received for work performed is classified as either employment or self-eimployment. If I do not have a signed agreement to be employed as an employee, then any contract or casual work I do for them is self-employment.

    • Barry Choi March 26, 2018 at 6:14 pm - Reply

      Donna,

      Thanks for this, I’ve updated the article with the relevant line numbers.

  15. DonnaW March 26, 2018 at 7:25 pm - Reply

    Thanks, Barry. The rest of the article offered correct information and will be helpful for readers. I spent a number of years using Line 104 and getting a run around with CRA on where that casual contract income should go before they finally dictated that any money earned for work is either employment income or self-employment income and in their view, this was the latter.

    I recently came across your blog and find the articles very helpful and interesting. Thanks for doing this.

  16. Terry March 28, 2018 at 9:36 am - Reply

    I have a question…

    If I do freelance work within Canada, but the company that is hiring me is a Dutch based company, do I bill HST, or is it considered 0% as the company hiring me is based outside of Canada? All payments made to me for the contract work are handled by the Dutch company and paid in Euro’s

    • Barry Choi March 28, 2018 at 9:41 am - Reply

      Terry,

      Since they’re based outside of Canada, no HST is charged as they’re are considered zero rated.

      Note that if you pay any exchange or wire fees when they pay you, that amount can be deducted.

      • Terry March 28, 2018 at 9:45 am - Reply

        Thanks Barry. That really helps. Didn’t know about the exchange or wire fees being deductible. That is really good to know.

  17. T Luciano April 2, 2018 at 1:08 pm - Reply

    Hi Barry,
    I live in Ontario and I do some freelancing (consulting services) work for a US based company. They are my only client. They issued me a 1099-Misc. Last year I made over 30k, but I did not charge them HST as I was not aware that I had to do this. Do I have to go back and charge them HST? Can I do this or do I just start charging them HST on all invoices for 2018? I am not sure how to handle. Also, I may not make over 30k in 2018 as my hours vary…how do I handle this situation? I am so confused.

    • Barry Choi April 2, 2018 at 1:22 pm - Reply

      T Luciano,

      If the company is based in the US, then you don’t charge them HST since they’re considered zero rated. That being said, as soon as you make over $30K, you need to register for an HST # and charge your Canadian clients tax. I advise speaking to an accountant.

  18. Devon April 3, 2018 at 12:47 am - Reply

    I work as an on call nanny for an agency on the side of my regular job. I pick which jobs I take, but they take a fee from each family that uses their agency and they decide how much I make per hour, based on varying factors. I made less than 3500$ from this last year. I can’t figure out if I should file it under “casual income” or “self employed” and all my googling isn’t helping. What would you say?

    • Barry Choi April 3, 2018 at 6:55 am - Reply

      Devon,

      I’m pretty sure the CRA would consider that self-employed income as I’m assuming they’re not issuing you a T4.

      Do you ever see the fee? E.g. You get paid $3,500 total, but after fees you got paid say $3,300? If so, you could deduct those fees on your taxes.

      You could also deduct any transportation costs e.g. transit or gas / car maintenance. If the kids are being dropped off at your place, you could technically claim a percentage of your home as a home office.

  19. jennifer April 6, 2018 at 6:31 am - Reply

    Hello!
    I am a Canadian residing in Europe and will be providing services for a canadian company. How would the invoicing work in that case?
    Thank you!

  20. Liz April 7, 2018 at 5:29 pm - Reply

    Hello,

    I am Canadian and did some freelance work via Upwork. All of my income was from US clients. No foreign taxes or anything were withheld. Do I report this under both self employment income and foreign income?

    Thank you for the great article!

    • Barry Choi April 7, 2018 at 7:42 pm - Reply

      Hi Liz,

      It would just be self-employment income.

  21. Liz April 8, 2018 at 11:42 am - Reply

    Thank you!

  22. kyla April 9, 2018 at 11:58 pm - Reply

    Hi Barry,

    I’m trying to file with Turbo Tax and am a bit confused. I did contract work in 2017 and made around $20k. Above you said “There’s no legal obligation to register your business as long as you’re invoicing under your own name”. I did invoice under my own name; however, I’m not sure how to file my taxes under “self-employment” without being registered as a business. Thanks in advance!

    • Barry Choi April 10, 2018 at 1:02 am - Reply

      Hi Kyla,

      When I say “There’s no legal obligation to register your business as long as you’re invoicing under your own name” I’m referring to incorporating.

      Self employment income is self employment income, you don’t need to have a formally registered business to claim that. You can still claim expenses even if you’re not registered.

      Hopefully this makes sense.

      • Kyla Schnellert April 10, 2018 at 11:58 am - Reply

        Thanks Barry! I think I’m following, so would I still file my income and expenses under the “self employment income”, but leave out the parts regarding incorporating (business #, etc.?)

        • Barry Choi April 10, 2018 at 12:03 pm - Reply

          That’s it! The business number also refers to when you register for HST (when you hit $30K in self employment income in one year)

  23. Heather April 10, 2018 at 4:15 pm - Reply

    Thanks for the great info, I do have a question though. Does a freelancer need to file taxes for personal AND business separately? Or is it just business expenses done through your personal tax return? ( I’m sure it’s a dumb question, but my mind is mush right now from trying to figure all these taxes out ) I hate taxes as well 🙁

    • Barry Choi April 10, 2018 at 4:31 pm - Reply

      It all falls under personal for self-employment unless you have an incorporated business. It’s just how you’ve structured things from a corporate standpoint

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