District manager for national tax preparation service offers guidance on deadlines, deductions, and more
Last year, tax season was a time of extreme confusion for self-employed Canadians, many of whom undoubtedly felt like they were filing taxes for the first time. With a new round of tax preparations and filings ahead of them, as their advisor it’s well worth revisiting some of the rules that apply to their specific situation, along with some pandemic-specific considerations.
“The deadline for self-employed individuals to file tax returns this year is June 15, 2022,” said Jeffrey Zhang, the district manager for H&R Block’s Victoria, BC office. “This year, the payment is due on May 2; if they miss that deadline, they’ll have to pay interest. And if they file their taxes past June 15, they need to make sure the payment is made before that date to avoid any penalties.”
Some Canadians may not realize that in the eyes of the Canada Revenue Agency (CRA), being self-employed is not the same as having your own incorporated business. For those in the latter camp, Zhang stresses that the filing deadline will not necessarily fall on June 15; instead, it will be six months after the end of their company’s fiscal year.
Another sticking point that’s worth reminding self-employed individuals about involves COVID benefit programs. Zhang encourages people to keep updated through the public hotline, especially since eligibility rules change frequently and the windows to avail of the benefits are opened only for certain limited times.
For self-employed individuals who were eligible for and collected financial aid under certain COVID aid programs, including the Canada Emergency Wage Subsidy and the Canada Recovery Hiring Program, those payments are considered as income. However, the income taxes for those payments are not withheld at source, so those individuals must make a note of paying and filing those taxes themselves.
“If they received some payments in error or were overpaid, they have to repay those overpayments,” Zhang said. “Those repayments would count as deductions that can be deducted in the year they are repaid. So the individual will report the income when they receive it, and report the deduction once they pay it back.”
Individuals who are self-employed must report all business and professional income on the T-2125 form, which must be filed along with the T1 individual income tax return. At the same time, they can also claim some eligible business expenses.
“Some common eligible expenses for self-employed people include a portion of expenses they incur when using their vehicle for business, such as gas, maintenance fees, insurance, and parking,” he says. “They can also claim expenses on office supplies, which can include anything from pens, to printer ink and paper. They can also make claims on cellphone costs – not the cost of the phone itself, but a portion of their monthly phone service fees.”
Because of the increased adoption of remote-work arrangements throughout the pandemic, Zhang says more Canadians, including those who are self-employed, are now able to make claims on home office expenses. To make those types of claims, however, he stresses that Canadians must be using those home spaces exclusively for business, and not for a combination of home and business use.
And while generally, self-employed Canadians have to make quarterly filings on GST if they earn more than $30,000 in gross income, Zhang emphasises that it depends on their specific business. Certain businesses, he said, are not required to register for or collect GST, regardless of how much they make.
“Being an Uber driver is a pretty common business now, and Uber drivers are required to register for GST no matter how much they make from it,” he says.
On a related note, Zhang says Canadians who get income from renting spaces out on Airbnb need to register and pay GST if they pass the $30,000 gross-income threshold. But because of a change that took effect on July 1, 2021, Airbnb must now collect and remit GST or HST on behalf of hosts who are not GST/HST registrants, and those taxes now apply to the service fee that Airbnb charges at the time a guest makes an online booking.
The change applies to the majority of Airbnb hosts whose income does not exceed the small supplier threshold and who have not registered voluntarily. Hosts who are currently registered for the GST/HST must continue to collect and remit those taxes on their short-term rentals of less than one month, and file GST/HST returns. And unlike non-registrants, hosts who are registered for GST/HST may also continue claiming input tax credits for their expenses.
This year, the CRA is opening the window for electronic filing of tax returns on February 21. For self-employed individuals who have a balance owing to the CRA, he also suggests they consider contributing into an RRSP – the deadline for that is March 1 – to reduce their overall taxable income.
“Self-employed individuals need to keep all the receipts and invoices related to the expenses and deductions they want to claim. That’s their responsibility,” Zhang adds. “But in practice, people don’t even know what they need to keep, or how much they can claim. So my advice is to always keep what they think is relevant, and let a professional service like us help them out.”