Freelance Taxes: 6 Important things you must know

October 25, 2022 Andrew AdolphAudits

Freelance taxes: Do you have to pay them? Find out below! 

No matter what job you do, the government will always want its slice of the pie. Whether you’re becoming a full-time freelancer or just looking to earn some extra money, here are 6 things you need to know about freelance taxes. 

 1. Keep Track of Your Income For The CRA

No matter how much you make, you’re required to report your freelance income to the CRA. 

Using a tax program in order to pay your freelance taxes is a sufficient way to do your taxes and save some time. Remember, even if you’re making as little as $60 a year from freelancing, you’ll still need to report that income. 

 2. Non-Incorporated vs. Incorporated Income Tax Forms

Now that you know you must report your income, how exactly do you do it? The forms you’ll have to fill out will depend on if your business is non-incorporated or incorporated. If you’re reporting self-employed income and you’re not incorporated, you need to fill out the T2125 form. 

If you’ve incorporated your freelance business, you will have to file both T1 and T2 income tax returns.

3. Save 30% Of Your Income for Freelance Taxes

What many new freelancers don’t realize is they will have to eventually pay freelance taxes on the money they earn. Some will be prepared, while others will be desperate when the time to pay arrives. As a general rule, it’s good to set aside 30% of your income for taxes, HST, and Canadian Pension Plan contributions. 

The federal tax rates are between 15 to 33%  in Canada. The exact rate will depend on your net income. Remember that you will also have to pay provincial taxes and rates vary but typically will have another 50% to the federal tax. For more detail about provincial tax rates, click here. 

If your freelance business is making under $30,000 yearly, you don’t have to worry about GST/HST. 

4. You Only Have to Charge GST/HST If You Earn More Than $30,000 In One Year

Coming from the point of view of an accountant, I know many people have questions about the GST/HST. A good rule of thumb to remember is that once you surpass $30,000 of gross income within a calendar year, you are no longer a small supplier. You must then register to and collect GST/HST tax. 

5. Claim HST

To claim HST, you must register for a GST/HST number with the CRA. As I mentioned earlier, you’ll need to be diligent about keeping track of your expenses. It might not seem like much when you’re claiming HST on your $10 rideshare, but for bigger expenses like laptops and lawyer fees, it’s worth it.

6. Don’t Go Overboard with Write-Offs

Getting carried away with expensing business purchases is not a good thing to do unless you want a phone call from the CRA. Having a business is a great tool from a tax planning perspective, and you will see how awesome expenses are at reducing your income tax base. But expenses are for applying against income, and if there is little or no income, then it’s not a business in CRA’s eyes.  

Still Confused About Freelance Taxes?  

Hiring a tax audit accountant or CPA bookkeeper can help you get additional money back from the CRA. Knowing your numbers allows you to maximize savings and profitable opportunities and avoid costly mistakes long term.  

Are you a small business owner or freelancer looking to grow and sustain your business?  

To book a free meeting, call 604-240-6173 or email me at andrew@gatewaytax.ca. I can answer any financial or tax-related questions you might have. You can also visit the Blog for additional tax-related resources.  

Andrew Adolph

Andrew Adolph is a CPA and former CRA auditor with 25 Years of experience. He helps businesses to not par any more in sales taxs than the law says they must and acts as an advocate for you if you are being audited, so you can fous on your business.