Tax Deductions and Benefits for Self-Employed People in Canada in 2022
May 8, 2022 | Written by: Sohail Afzal
Self-employed people in Canada have a lot of tax benefits and deductions available to them. It is important to understand what they are to take advantage of these benefits. This article will provide an overview of Canada’s most common tax deductions and benefits for self-employed people. We will also provide information on how to apply for these tax breaks and the differences between tax benefits and deductions.
Differences Between Deductions and Credits
The first thing to understand is that there are two types of tax benefits available to self-employed people in Canada: deductions and credits.
What are Deductions?
Deductions are expenses you can claim on your tax return to reduce your taxable income. In other words, deductions lower the amount of money you owe in taxes.
What are Credits?
Credits are a type of tax benefit that directly reduces the amount of taxes that you owe. Unlike deductions, which lower your taxable income, credits are deducted from the amount of taxes you owe after your taxable income has been calculated.
Accounting and Professional Fees Deduction
One of the most common deductions for self-employed people is the accounting and professional fees deduction. This includes any fees you paid to an accounting or tax firm to prepare your taxes. If you paid someone to do your bookkeeping, that would fall under this category.
Business Expenses Deduction
Another common deduction is the business expenses deduction. This covers any expenses you incurred to run your business, such as office supplies, equipment, and travel costs. You can deduct a portion of these expenses based on the percentage of time you use them for business purposes.
There are several business expenses that self-employed people can deduct. Some of the most common ones include:
This includes everything from paper to ink cartridges to stationery. You can deduct the cost of these items in full or deduct a portion based on how much you use them for business purposes.
If you purchase any equipment specifically for your business, you can deduct the cost of that equipment from your taxes. This includes computers, printers, fax machines, and anything else you might need.
If you travel for business purposes, you can deduct the cost of your travel costs from your taxes. This includes airfare, hotel costs, and even meals.
Meals and Entertainment
You can deduct a portion of the cost of business meals and entertainment from your taxes. This includes business lunches, client dinners, and tickets to sporting events or concerts.
Credits Available to Self-Employed People
In addition to deductions, there are also several credits available to self-employed people in Canada. Credits are a type of tax benefit that directly reduces the amount of taxes you owe. Unlike deductions, which lower your taxable income, credits are deducted from the amount of taxes you owe after your taxable income has been calculated.
Some of the most common credits available to self-employed people include:
The Small Business Job Credit
This credit is available to businesses with less than $500,000 in annual revenue. It provides a tax credit of up to $1000 for each new job created by the business.
The Home Office Expenses Credit
This credit is available to self-employed people who work from home. It allows you to claim a portion of your home office expenses, such as rent, utilities, and insurance.
The Capital Gains Deduction
This deduction allows you to deduct a portion of any capital gains you earn from selling business assets.
Applying for Tax Benefits and Deductions
If you are self-employed, there are a few things you need to do to apply for tax benefits and deductions.
First, you will need to register your business with the government. This can be done online or through your local business registry office. Once your business is registered, you will need to get a business number from the Canada Revenue Agency (CRA).
Once you have a business number, you can begin claiming deductions and credits on your taxes. You will need to keep receipts for all expenses to claim them on your tax return.
It’s important to note that there are different rules for claiming deductions and credits depending on your business type. For example, sole proprietorships and partnerships have different rules than corporations.
If you are unsure about how to claim deductions or credits, you can speak to a tax expert or accountant. They will be able to help you maximize your tax benefits and ensure that you are following all the rules and regulations.
Things to Consider When Filing Your Taxes as Self Employed
When it comes time to file your taxes, there are a few things self-employed people need to keep in mind. First, you will need to register your business with the government. This can be done online or through your local business registry office. Once your business is registered, you will need to get a business number from the Canada Revenue Agency (CRA).
Self-employed people also have to pay taxes quarterly rather than annually like most employees. This means that you will need to set aside money each month to ensure that you have enough to cover your tax bill when it comes due.
Finally, self-employed people are not eligible for the same government benefits as employees, such as Employment Insurance or the Canada Pension Plan. This means that you will need to make your own arrangements for things like disability insurance and retirement savings.
Despite all of these extra considerations, being self-employed has a lot of advantages. When it comes to taxes, self-employed people have several deductions and credits available. With a little planning and some help from a tax expert, you can make the most of these benefits and save yourself some money come tax time.
Please get in touch with our accounting firm if you have any questions about the tax deductions and benefits available to self-employed people in Canada. Our tax experts would be happy to help you maximize your deductions and minimize your taxes. Contact us today to learn more!
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.