Tips for Paying Income Tax as an Independent Contractor in Canada
May 12, 2021 | Written by: Sohail Afzal
Being self-employed means a lot of flexibility in daily work hours, the place for working, and how much money you make. Many entrepreneurs realize that they can make much more money as an independent contractor than working two or even three jobs. But with more leverages comes more responsibility.
As an independent contractor in Canada, you are liable to pay taxes to the CRA because once you are working for yourself, CRA considers your business a sole proprietorship. If you are working as an independent contractor in Canada and your business is not incorporated, you might want to go through some of these tips for paying your income tax.
1. Get an official GST/HST Account
Goods and Sales Tax (GST) and Harmonized Sales Tax (HST) in Canada work for both CRA and the business owners as equally beneficial. If you earn more than $30,000 a year or over any consecutive four quarters, you will need to charge and collect these taxes and then remit them to the CRA. Once you register for the GST/HST account, you can also get your BN (Business Number) which you may need for many other documentation processes of your business. Even if you don’t make that much in your business, you can still benefit from GST/HST tax credits for what you will be paying to the CRA.
2. Keep your Books
Running your own business means deducting the tax from your profits on your own. When you work for someone else, it’s their responsibility to deduct the tax amount from your salary. But when the profit and everything belongs to you only, you will be the one keeping all your books. Or you can also hire someone for this purpose. However you manage it, you will need to keep track of the business expenses. You will also need to separate your marketing and advertising budget from your profits and other investments while also calculating how much will go into taxes. Yes, it sounds pretty hectic to do it all on your own. And that is why it is always recommended for sole proprietors or self-employed people to hire a professional bookkeeper.
3. Use Professional Help
Managing your entire business alone and then taking care of all the taxes takes a great deal of effort. You have to stay committed all the time, and there are no days for you to relax. Because when there are fewer sales or some free time at your hands, it means it’s Bookkeeping-O’clock. Without using professional help, you will be exhausting yourself for the tiny details that go into the finance of your business. On the other hand, a professional accounting firm on your side will come as a multitude of benefits for you. They will save your time, energy, and even money – which it is all about. You cannot imagine the monetary benefits you can have with a professional accounting firm’s services for your business.
Whether or not you fall in the HST bracket, you can still use it for your own benefit. You can make claims and also minimize your taxes through the declaration of your business expenses. No matter what you do and how you do, it is always important to remember that you underreport your income to the CRA under no circumstances. People usually get so frustrated with the taxes and bookkeeping that they start to develop deceptive plans, which is where it all goes wrong. Therefore, the best way to deal with your taxes is to have a professional bookkeeper by your side.
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.