Welcome to the world of freelancing! You have the freedom to choose your projects, set your own hours, and be your own boss. But with that freedom comes a new set of responsibilities, especially when it comes to taxes. As a freelancer in Canada, you're not an employee, you're a business owner. This means you're in charge of your own tax planning. At Nunniyer Business, we specialize in helping independent professionals navigate the tax landscape. To get you started on the right foot, here are five essential things every Canadian freelancer needs to know about taxes.
1. You’re Responsible for Your Own Taxes (Including CPP)
Unlike a traditional employee, no one is withholding income tax, CPP, or EI from your paychecks. You are responsible for setting aside money for all of these. A good rule of thumb is to set aside 25-30% of every payment you receive to cover your tax obligations. For CPP, you’re responsible for paying both the employee and employer portions.
2. You Must File Form T2125
When you file your personal tax return (the T1 General), you’ll also need to complete and file a Form T2125, Statement of Business or Professional Activities. This is where you report your business income and, most importantly, all your eligible business expenses to calculate your net income.
3. Know Your Deductions to Lower Your Taxable Income
The biggest advantage of being a freelancer is the ability to deduct expenses. Every business-related expense you claim directly reduces your taxable income. This means you pay less tax. Here are some common deductions to track:
Home Office Expenses: A portion of your rent or mortgage interest, utilities, and internet if your home is your principal place of business.
Supplies & Equipment: Costs for your computer, software subscriptions, and office supplies.
Professional Fees: Payments to us, your accountant, or other professionals like lawyers.
Advertising: The cost of your website, business cards, and online ads.
Remember to keep digital or physical records of all your receipts!
4. The GST/HST $30,000 Threshold Still Applies
Just like with a small business, once your total revenue from taxable goods and services exceeds $30,000 in a single calendar quarter or over four consecutive calendar quarters, you must register for and begin collecting GST/HST. This is a common source of confusion, so it’s a critical threshold to track.
5. Consider Making Tax Installments
If you expect to owe more than $3,000 in taxes in a year, the CRA may require you to make quarterly tax installments. This helps you avoid a huge tax bill at the end of the year and potential interest charges. It’s much easier to pay a manageable amount every three months than a massive lump sum.
The world of freelance finances may seem intimidating at first, but with a solid plan, it’s completely manageable. Getting organized early is the best way to ensure you’re compliant and keeping more of your hard-earned money.
If you have questions about your specific situation or need a partner to help you with your freelance taxes, please feel free to reach out. We’re here to help.