10
Dec
With the ease of telecommuting and remote work options, many people are choosing to offer their services on a contract or freelance basis. Unlike a regular job where your taxes are deducted on each paycheque by your employer, the responsibility is now on you to track your earnings and your taxes owing.
Whether you are doing freelance work on the side or starting your own fulltime endeavour, it still qualifies as a small business and will have tax implications. Income must be declared on your income tax return using Form T2125. Along with filing this form, you also have to complete the normal T1 tax return.
Being an independent contractor doesn’t determine how you pay your taxes. It is the legal form of your business whether you are in a partnership, incorporated or sole proprietorship.
Being a contract worker you need to know what your allowable deductions are. Generally, it is your income minus expenses. If you have a home office, there will be expenses that you can deduct that will differ if you are using a shared workspace. If you are required to travel for your job, you can also deduct the travel expenses.
The Government of Canada website has some general rules for how much to set aside for taxes. If you fall within certain income brackets, you will pay a certain percentage of tax. For example, if you make less than $47,680 you should set aside at least 15% for taxes. The following chart is a good guideline.
| Tax Rate | Tax Bracket |
| 15.00% | Up to $47,630 |
| 20.50% | $47,630–$95,259 |
| 26.00% | $95,259–$147,667 |
| 29.00% | $147,667–$210,371 |
| 33.00% | $210,371 and over |
You can find more in-depth information on Canada.ca. Keep in mind this chart doesn’t take into account, provincial or territorial tax rates, or that you will have various deductions and expenses that will lower your net income.
In addition to income tax, you are also required to make contributions to the Canada Pension Plan if your income is over $3500 in a given year. The CPP rate for 2019 is 5.10%, increasing to 5.25% in 2020. Since CPP rates are matched by your employer, those who are self-employed will have to be prepared to match their own contributions.
In regards to registering for GST/HST, if you make less than $30,000.00 over 4 consecutive calendar quarters, you do not have to register but you may choose to do so voluntarily.
Keeping track of your expenses can go a long way to helping with what you have to pay come tax time. Make sure you know what qualifies as a business expense.
The Canada Revenue Agency has all the forms and information to keep you on track. Being informed on what your responsibilities are will save you time and money come tax time. Better yet, why not give us a call at Keenans Accounting Service. We offer full bookkeeping services, government remittances, tax planning and so much more. Let us keep a keen eye on your books so you don’t have to.