Freelancers in Canada are an integral part of the economy. Glassdoor says these talented professionals earn a national average of $48,721 annually. Of course, they must file taxes like the rest of the workforce.
However, unlike typical workers and business entities, this talented bunch must handle their tax obligations independently—without the resources of an employer or team.
This can make tax compliance more challenging, but knowledge of the unique tax features impacting the country’s gig economy can go a long way in ensuring compliance. As a freelancer in Canada, these tips can get you far in establishing a legal and thriving career:
Tax Tips for Freelance Professionals in Canada
Lay the Groundwork
The first step in streamlining your tax filing process is to decide between operating under your name or a business name. Operating under your legal name requires no business registration, but a business name mandates legal registration and potentially a dedicated bank account.
If you have questions, don’t hesitate to consult a tax professional. However, even this can be tricky, especially if your work takes you from one city or province to another.
For instance, a CPA in Toronto, Ontario, may advise you differently from one in Vancouver, British Columbia. In any case, be as transparent as possible when talking to an expert to get advice that works for you instead of against you.
Study Your Return
Like other Canadians, you must complete Form T2125, the Statement of Business or Professional Activities, where you input your freelance income and expenses in detail. For efficiency, use the e-filing services the Canada Revenue Agency (CRA) offers and auto-populate the form with your old data. Also, keep your spreadsheets and receipts handy, as the CRA may ask for them post-filing.
Know Your Deductions
Calculating your deductibles is crucial to determining your taxable income, the difference between your net earnings and total deductible expenses in the previous calendar year.
You can usually claim deductions for office supplies, marketing, business equipment, Internet, travel, and even meals and entertainment as a freelancer. The key is to keep records of such expenditures and prove you incurred them for business purposes.
Expand Your Benefits
As a freelancer, you’re essentially on your own in securing a comfortable retirement, so be proactive by dedicating a portion of your earnings regularly to your Registered Retirement Savings Plan (RRSP). Your RRSP contributions are tax-deductible and grow tax-free over time, giving you a financial nest egg to support your desired lifestyle during retirement.
Manage Your GST/HST Obligations
Freelancers are not exempt from collecting and remitting Goods and Services Tax/Harmonized Sales Tax on their sales within Canada. GST is a federal tax on goods and services, while HST combines federal and provincial sales taxes in certain provinces. If your earnings from supplying taxable goods or services exceed $30,000 over four calendar quarters, you must register for the related GST/HST taxes. You can collect and remit them to the CRA. Due to their independent status, freelancers in Canada may face unique challenges in managing their taxes.
Final Thoughts
Therefore, understanding the tax landscape is vital for their financial health and compliance. As a freelancer, you can prevent tax issues when you make it a point to stay informed. Remember to use available resources and seek professional advice when necessary.
