Freelancing in Canada can offer flexibility and the freedom to work on your terms, but it also comes with important tax responsibilities.
Unlike traditional employees, freelancers are responsible for managing their taxes, which includes reporting income, registering for GST/HST, and tracking deductible expenses.
It can be a lot to remember, but we’ve got you covered with this cheat sheet about everything you need to know regarding your taxes as a freelancer.
1. Reporting Freelance Income
As a freelancer, all the income you earn from your work is considered self-employment income. This means that you must report it on your personal income tax return.
Keep detailed records of every payment you receive throughout the year, including invoices, contracts, and any other documentation that supports your earnings.
Whether you’re a full-time freelancer or it’s a side gig, failing to report income can lead to penalties.
2. GST/HST Registration
Freelancers who earn more than $30,000 in gross revenue over four consecutive calendar quarters are required to register for the Goods and Services Tax (GST) or Harmonized Sales Tax (HST), depending on the province.
Once registered, you’ll need to charge GST/HST on your services and remit it to the Canada Revenue Agency (CRA).
If your income is below the $30,000 threshold, registration is optional, but it can still be beneficial.
For example, registering allows you to claim input tax credits (ITCs) on expenses related to your business, such as supplies or equipment. This can help reduce the amount of tax you owe.
3. Deductible Expenses
Freelancers can reduce their taxable income by deducting eligible business expenses. Deductible expenses include costs that are necessary to run your business, such as:
- Home Office Expenses. If you work from home, you may be able to deduct a portion of your rent, utilities, and home maintenance expenses.
- Equipment and Supplies. Computers, software, office supplies, and other equipment used for work can be claimed.
- Marketing and Advertising. Costs associated with promoting your services, such as website hosting, business cards, or social media ads, are deductible.
- Professional Development. Courses, workshops, or seminars related to your freelance business can be written off.
- Travel and Meals. If your freelance work requires you to travel, you can claim travel expenses, including flights, accommodation, and meals. Note that meals are typically only 50% deductible.
Keeping thorough records of all your expenses is important to make sure you get back everything you’re entitled to. In the case of an audit, you’ll need to provide receipts and documentation to support your claims.
4. Quarterly Tax Installments
Many freelancers don’t have taxes automatically withheld from their income like traditional employees, which means you’re responsible for setting aside money to pay taxes.
If you owe more than $3,000 in taxes at the end of the year, the CRA may require you to make quarterly tax installment payments. These installments help cover your taxes in advance, preventing a large bill when you file your tax return.
5. Filing Your Taxes
When filing your taxes as a freelancer, you’ll need to complete Form T2125, which is the Statement of Business or Professional Activities. This form allows you to report your income and deduct business expenses and should be submitted along with your personal income tax return.
While it’s possible to handle your taxes on your own, many freelancers choose to work with an accountant to ensure they’re maximizing deductions and staying compliant with CRA requirements.
Seek Professional Guidance from Isaac Achal Professional Corporation
Managing freelance taxes can feel overwhelming, especially as your business grows. From registering for GST/HST to ensuring all eligible expenses are deducted, working with an experienced accountant can help you stay organized and avoid costly mistakes.
Need help with your freelance taxes? Reach out to Isaac Achal Professional Corporation for all your taxation and accounting questions.
Whether you’re just starting or looking to streamline your tax process, we can provide personalized advice to help you stay on top of your financial responsibilities.
