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Understanding Canadian Self-Employment Tax Forms

Key takeaways:

  • Filing taxes as a self-employed individual is different than as an employee
  • Businesses that are sole proprietorships or unincorporated partnerships can be categorized as self-employed
  • Self-employed businesses have specific tax forms to complete and file in Ontario depending on their business activities
  • Work with an expert accountant to get support on the documents you need to file as a self-employed business owner

Being self-employed might seem like the ideal situation to many people, and it surely comes with many benefits, but when it comes to calculating your taxes, being self-employed can be quite confusing. From figuring out if and how to claim certain business-related expenses to knowing which forms to fill out, there are many differences in the way a self-employed individual files taxes than an employee.

If you have more than one source of self-employed income, separating your different kinds of self-employment income and expenses by type is a great place to start.

So how do you know which self-employed tax forms you’re required to complete and submit? That depends on the type of self-employed income you earn.

In this article, we’ll go over the various types of self-employed income and the different tax forms that you may need to complete.

What are the different types of self-employment?

The most common types of business structures for self-employment are either sole proprietorship or a partnership (unincorporated partnership, unincorporated limited liability partnership, or unincorporated general partnership).

A sole proprietorship has a single owner, whereas a partnership of any kind means there are two or more owners. The income earned from these types of businesses can be classified as self-employment income. All of these are unincorporated business types because once incorporated, you are no longer considered self-employed, rather, an employee of the corporation.

Those who are classified as self-employed sole proprietors or partners will pay the same income tax rate as any other Canadian employed by a business, who makes the equivalent income amount.

Which tax forms do I need to fill out as a self-employed business owner?

Depending on the structure of your business, the tax forms you complete and file may slightly differ, however whether you’re a sole proprietorship or a partnership, you will need to file personal income taxes alongside other applicable returns.

The tax form for personal income tax is Form T2125, Statement of Business or Professional Activities, which is one of the most important self-employed forms.

Form T2125, Statement of Business or Professional Activities

Form T2125, Statement of Business or Professional Activities, is the form in which you will declare your personal and business income, as well as business expenses. Through this form, you will be able to deduct your eligible business expenses, such as phone bills, rent, supplies, and other operating expenses. For more information about deductible business expenses, check out this article Top 4 Common Tax Write Offs and Deductions for Small Business Owners

Form T2042, Statement of Farming Activities OR T2121, Statement of Fishing Activities

According to the CRA, self-employed income can also come from farming or fishing activities. If your income is generated through farming or fishing activities, you will need to complete the respective form for farming and/or fishing.

Form T4A, Statement of Pension, Retirement, Annuity, and Other Income

While a T4 slip is issued from employers to their employees for pensions, RRSPs, and other accounts, it is more useful for self-employed individuals in tracking their overall income.

If you’re a freelancer or independent contractor, the T4A self-employment income slip is useful for tracking income from your various clients throughout the year. Typically, you’d receive a T4 slip from each of your clients for the jobs completed during that tax year. That T4 slip would provide a total value of each job, which helps calculate the total income and taxes owed.

Form T5013, Partnership Information Return

This form is primarily for self-employed individuals that run their business as a partnership. Usually, running a partnership vs. a sole proprietorship comes with additional tax documents that need to be completed, such as this Form T5013 – the partnership information return. All types of partners must file this return, including limited partnerships and nominees and agents holding an interest in the partnership.

If you own an interest in the partnership, then you must also complete and file Form T5013SUM, Summary of Partnership Income.

The only type of partners that are exempt from filing this partnership information return for their taxes are Status Indians.

T1 Return

The T1 Form is generally one of the last forms to be completed because it requires the information from some of the forms listed above. The T1 general turn is your personal income tax return. For self-employment taxes, your business’s income is your personal income, so you will only need to fill out one form for your taxes.

Form GST34

If your business makes more than $30,000 a year, you will need to file form GST34, which is the GST/HST return. This enables the CRA to collect on the harmonized sales tax of your business. Note that in order to file this form, and operate a business at this capacity, you will need to register for a GST/HST number.

How do I get these forms and file them?

Knowing how to properly file the tax forms that you’re required to can seem confusing. It’s best to work with an expert accountant that knows the requirements for your province and can ensure you don’t violate any income tax rules and regulations.

 

FShad CPA Professional Corporation can help you track and categorize your expenses and revenue to accurately record your financial activity and know which documents to complete.

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Book a consultation today and get started with our team of expert accountants!

FShad CPA Professional Corporation

Call us at (844) 982-4700 or send us an email to info@shadcpa.ca

3850 Steeles Avenue West, Unit 10 – Suite 203.

Woodbridge, ON, L4L 4Y6.

 

This publication is produced by FShad CPA Professional Corporation as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors. Your use of this document is at your own risk.