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 relates 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. You’re taxed only on your net income which is your total income minus all your expenses. Look for line 104 on your tax return where it says “employment income not on a T4 slip.” This is where you report your business 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 can not 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.

This paperwork can be a bit confusing, but the good thing is that if your taxes online, all you just need to type in your income and expenses and the software will do the rest.

GST/HST Registration

Freelance taxes remains 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 | 2017-03-22T13:20:17+00:00 March 2nd, 2017|My Money, Personal Finance|

12 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.

  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!

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