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Income Tax

The Canadian tax system is a self-assessment system. Individuals are required to determine their own liability for income taxes and file the required returns for any taxation year in which taxes are payable.

A tax return is the form(s) used to report income and file income taxes with the CRA (Canada Revenue Agency). Tax returns allow taxpayers to calculate their tax liability and remit payments or request refunds, as the case may be. Individuals each file their own tax returns; spouses do not file jointly.

The taxation year for an individual is the calendar year. That means the tax year ends on December 31st of each year.

The deadline to file and pay your taxes is April 30th of each year except for individuals reporting self-employment income. If you are self-employed you have until June 15th to file your return, BUT you still have to pay any taxes you owe by April 30 (yes, you can pay the government what you think you owe them and file your actual tax return later).

As an independent artist producer, the CRA views you as a business. If you are not incorporated, you are considered a sole proprietor and any income you have from your producing activities is considered self-employed income. Learn more about the difference between an employee and a contractor here.

Self-Employed Income

Invoicing

It is a good idea to keep track of every dollar you receive, whether it's a $100 gig or $10,000 contract. Get in the habit of properly invoicing for your services. This will help you immensely when you are filing your return. If you are having an accountant or tax expert file it for you, they will be very happy that your records are kept so clearly (and their fee for services will be significantly less!).

Check out this list of 10 invoice templates for freelancers and find the one that works best for you (we recommend #1, #2 or #7), or download our basic invoice template by clicking here.

Also keep in mind that grants you receive are considered income. Don't forget about these at tax time.

Deductions

When you are an employee, your employer remits your basic deductions from your paycheque for you and pays it to the CRA. But being self-employed means you have to do this for yourself. Make sure you are setting aside money from each paycheque you receive to go towards Income Tax + CPP (Canada Pension Plan).

The percent of money you should set aside for your income tax is dependent on your marginal tax rate. Here is a great blog post about understanding marginal tax rates by Rags to Reasonable.

Your CPP contribution when you are self-employed is 9.9% of your income (when you are employed, your employer pays half of this).

T4A

When you provide your services to a company or organization, but you are not in an employee-employer relationship with them, they may still file a T4A Statement of Other Income reporting the value of income you earned from them. The deadline for this statement to be delivered to you is February 28 of each year. When they send you your T4A slip, they are required to send an identical one to the CRA, so it is a good idea to cross reference the amounts on these slips with your records, and use them for filing your taxes.

HST

If your self-employment income exceeds $30,000 in a year, the CRA requires you to obtain an HST number and start charging HST for your services. Read more about GST/HST.

Grants

Filing your taxes after receiving a grant can be complicated. Download our white paper on Government Grants and Their Tax Treatments to help you (and your accountant) navigate accounting for your grants.
View it as a PDF or Download Government Grants and Their Tax Treatments: A Guide to Preparing Your Taxes After Receiving a Grant

Employment Income

You may have a job or contract where you are an employee. Your basic deductions are already made for you and remitted to the CRA. You will receive a T4 Statement around tax time each year that states your total income for the year from that employer, and what was deducted from that and paid to CRA. The balance amount is what you should have received in payment from your employer. Use your T4 slips to file your income tax.

You may be in the situation where you are an employee in conjunction with your self-employment activities. You will need to combine all of your T4, T4a, and other invoice records at tax time to determine your total combined income and taxes owing.

Tax Rates/How Much Should You Save

Freelancers are often responsible for saving our own taxes. The amount varies from province to province. Rags to Reasonable has put together a very comprehensive article on How Much Tax You Should Save. The gist of it is:

  1. Use last year as a guide
  2. Harness the power of your fear to oversave for your taxes
  3. Think through your upcoming year and play around with a tax calculator (try this great Tax Calculator by SimpleTax)
  4. Set Milestones and times of year to check in


More Questions?

Check out The Balance Small Business list of FAQ's and Answers for Canadian Small Businesses and Canadian Freelancers.

This is a living document captured as of October 16 2018  

Created by kpalm. Last Modification: Thursday February 27, 2020 16:35:18 EST by kpalm.