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Am I self-employed and how does that affect me at tax time?

by TurboTax Updated 6 months ago

If you’re unsure whether you’re earning your income as an employee, or as someone who’s self-employed, you need to determine which is the case for income tax purposes. Guidance from the CRA can be found at Employee or Self-employed. Very broadly, this involves considering who has more control over your situation: you, or the one who’s paying you.

The nature of your income has to be separately determined for each income source you have. You could be an employee at one job, be it full-time or part-time, and you could also be self-employed from a separate contract or “gig”, whether full-time or part-time.

If you receive a regular paycheque with full government deductions at source (CPP, EI, tax) on a T4 slip, that means the person who’s paying you feels that you are their employee.

If you have a T4 slip, but you feel that you are in fact self-employed, you first need to discuss it with whomever is paying you, to try to reach common understanding, if it isn't already specified in a written agreement. Alternatively, a request for a ruling can be sent to the CRA. Here are the various CRA online portals for “Requesting a CPP/EI Ruling”:

If you have received a T4 slip and you decide to file your tax return for that year as self-employed for the income from that source, it’s likely you’ll get a review letter from the CRA. An alternative to this is to include the income from the T4 slip on your return. Then, if the income is clearly determined to be self-employment, you can ask the CRA to amend the return if it has already been filed. Rideshare and food delivery drivers are typically self-employed.

For income from self-employment, use of a T2125 form (Statement of Business or Professional Activities, available in TurboTax) to declare business income and expenses.

If you gross over $30,000 in revenue from taxable* sources combined in four or fewer consecutive calendar quarters from self-employment, you must register with the CRA and otain a HST/GST number. For a short video and FAQ’s from the CRA, see GST/HST Registration. You may see or hear the legal terms “remit” or “remittance” with respect to the GST/HST. That just means that for the GST/HST you’ve collected and declared on your GST/HST return, you pay it to the CRA.

The GST/HST has three activity types:

1.     *Taxable

2.     Zero-rated

3.     Exempt

For more info on each activity type, see Type of Supply. Once you have determined you are required to charge HST/GST, charge it on all taxable goods and services.

Keep records of your business income and expenses for six years in case the CRA asks any questions.

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