Self-employment is all about enjoying your freedoms. Unfortunately, poor accounting practices and challenging tax seasons often ruin the fun for self-employed professionals in Canada. Plus, pandemic-related changes in bookkeeping laws and regulations are making things more complex for Canada’s growing self-employed population.
What new obligations do self-employed professionals have to meet as per the Canada Revenue Agency (CRA) in 2022? There’s plenty of red tape and paperwork involved. Thankfully, initiatives from the Canadian government like the startup visa program are encouraging entrepreneurs to keep developing.
Whether you’re a freelance worker or an online entrepreneur – you need to learn the fundamentals of self-employed accounting in Canada. Here’s the definitive guide to taxes and bookkeeping in Surrey for self-employed professionals in 2022 –
1. Accounting and Tax Essentials for Self-Employed Professionals
There are certain essential responsibilities that self-employed professionals must complete before the tax season comes calling. They should comply with the CRA’s rules and regulations regarding tax forms. After going through these details, self-employed professionals must –
- GST or HST Registration: Register for their Goods and Services Tax (GST) and Harmonized Sales Tax (HST) numbers. All self-employed professionals who earn $30,000 or more p.a. should register for their GST or HST numbers.
- Date of GST or HST Registration: As soon as self-employed professionals start earning more than $30,000 a year, they should register for their GST or HST numbers.
- How to Complete GST or HST Registrations: Self-employed professionals must provide their personal and business details to the CRA. These details range from – the business name, social insurance number, business number, etc.
Self-employed professionals with income lower than $30,000 p.a. need not register for GST or HST numbers. They’re deemed as “small suppliers” by the Government of Canada.
2. How Self-Employed Professionals Need to Calculate their Taxes
Self-employed professionals have to pay taxes on only one form of income. Their business earnings and additional personal incomes are grouped together, and there are no separate tax rates for the two. However, all self-employed professionals need to contribute to their Canadian Pension Plans. They can also opt for additional employment insurance plans.
Overall, a self-employed professional in Canada has to pay the following amount in taxes –
Personal and Business Income Tax + Canadian Pension Plan Contributions + Employee Insurance (optional)
Self-employed professionals in Canada may also have to pay provincial taxes. Each province in Canada (except for Quebec) has provincial/territorial taxes that are levied and collected by the CRA.
Here are the tax rates for Canadian self-employed professionals in 2021 –
- $0 – $47,630, Tax Rate – 15%
- $46,630 – $95,259, Tax Rate – 20.5%
- $95,259 – $147,667, Tax Rate – 26%
- $144,667 – $210,371, Tax Rate – 29%
- $210,371 (or higher), Tax Ratee – 33%
Self-employed professionals in Canada are taxed progressively. That means all your income up to $47,630 will be taxed at 15%. All remaining amounts will be taxed at 20.5%, 26%, 29%, progressively.
3. What Tax Forms Do Self-Employed Professionals Need to Fill Up?
After self-employed professionals complete their GST or HST number registrations, they need to fill up specific tax return forms. In 2021, these are the forms that self-employed professionals need to fill –
- T1 Return Form: Standard personal income tax return form that all professionals in Canada have to fill.
- T2125 Form: Self-employed professionals must prepare this form carefully as it identifies their annual gross incomes. They can quote legitimate self-employment expenses on this form to earn healthy deductions.
- T4A form: All professionals in Canada have to fill up T4A tax forms when they receive income from pensions, annuities, etc. Some of these incomes may be taxable. Self-employed professionals should ask their clients for T4 slips.
4. What Deadlines Do Self-Employed Professionals Need to Meet in 2022?
Self-employed professionals in Canada need to send their tax payments to the CRA by April 30th. It’s the final deadline for paying/filing taxes. The tax forms can be e-filed after January 2021.
5. Key Challenges of Filing HST and GST Taxes for Self-Employed Professionals
Many self-employed professionals in Canada are not good with accounting. Dealing with the hassles of filing taxes impedes their personal/commercial affairs. To keep their books up to date and “audit-ready,” self-employed pros must exercise one of these two options –
- Learn from the Internet and do it on their own
- Hire full-time accountants for assistance
Hiring expert bookkeepers is the best option for self-employed professionals. Want to cut costs and increase your revenues in the confusing post-pandemic world? Find an expert CPA with experience in bookkeeping!
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