What Self Employed People Should Know About Income Tax – Frequently Asked Questions

by Guest on May 31, 2012

1.  Am I really self employed? – Self-employment is determined by the amount of control you have over your work. If you are in any doubt about your relationship, you can request a ruling from the CRA using Form CPT1, Request for a Ruling as to the Status of a Worker under the Canada Pension Plan and/or the Employment Insurance Act.

2.  What is the per kilometer rate? – Unless you have already submitted a logbook to the CRA for a previous year, you cannot use a simplified method to calculate your auto expenses. You need to have a detailed logbook for the year to report your expenses correctly.

3.   Does a sign on my car mean I can claim 100% of my mileage? – You can claim the sign cost as an advertising expense but it does not mean every kilometer you drive is for your business. You still need to record your kilometers in a logbook.

4.  Can I write off my mortgage? – The answer is no. Self-employed Canadians are allowed to claim a portion of their mortgage interest based on the amount of space used for the business in their home. Mortgage principal is not a deduction.

5.  Can I claim my home phone? – If you only have one phone line into your home, you cannot claim 100% of the expenses for business. The CRA will expect you to have some personal use so you will need to calculate the percentage used for business and personal. The same applies to your internet connection.

6.  Are credit card statements enough? – No. The CRA will want to see a receipt with a breakdown of the cost and taxes paid. Self-employed Canadians are more likely to be audited, so make sure you keep your receipts and other documentation to support your business expenses.

7.  Do I have to make instalments? – If you owe $3,000 or more in taxes in any two of the last three tax years, the Canada Revenue Agency will request that you make quarterly instalments rather than an annual payment. Failing to make instalment payments could incur an interest charge.

8.  Do I need a GST number? – If your annual revenues are more than $30,000, you have to register for the GST/HST. However, even if your revenues are less than this, it is usually advantageous to register so that you can claim input tax credits for the GST/HST you pay.



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{ 3 comments… read them below or add one }

John May 31, 2012 at 4:52 pm

Self-employed income tax can be a difficult thing to wrap your mind around when you’re first starting out in business. My recommendation would be for people to keep their accounting simple and try their best to track every transaction. That alone will get you a long ways, but make sure to pay your income tax people! 😀

Mastercard Pre-Paid June 12, 2012 at 3:08 am

I agree with John, the first year may be tough for the business as well as juggling with the operating cost and taxes. One can always seek help from a local tax person just for the first few months. After some time, when business activities will be more systematic, then one can take control of it.

What about online transactions Cleo? Most online transactions don’t have receipts. How do you go about with the taxes?

Best regards,

Cleo Hamel June 20, 2012 at 9:35 am

Even if the transaction is completed online, I would recommend keeping some form of record whether it is printing out the receipt or taking a screenshot. You can even keep a written record of it yourself. The CRA will want to see proof of a transaction as well as a breakdown of your taxes paid. If you cannot produce proof, the CRA can disallow your claim.
Completing a transaction online does not exempt you from having a receipt.

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