Self-Employment & Taxes
Self-Employment & Taxes
Being self-employed in Canada comes with a different set of tax responsibilities that carry their own consequences if not properly managed. It’s not all bad news, as there are also advantages to being self-employed when it comes to taxes, as we’ve demonstrated previously in these two great posts.
Coming back to the income portion of self-employment, self-employment income is earned from a business that one operates themselves as a sole proprietorship or with someone else as a partnership. This simply means that any income generated from an activity for profit, or with what the CRA calls “reasonable expectation of a profit”, is considered business income and must be reported as such. These activities that constitute a business are quite vague, as shown below:
- A Profession
- A Calling
- A Trade
- A Manufacture
- An Undertaking of any Kind
- An Adventure of Concern in the Nature of Trade
It is important to note that employment income (that is if one works for a company as an employee), is not classified as business income.
When it comes to a sole-proprietorship or a partnership, the business income is reported on personal income tax filings. This means the due dates, financial penalties, and interest charges are the same as anyone else filing taxes.
Is it Rental Income or Business Income?
We get asked this quite regularly, if certain rental property income is classified as ‘rental income’ or as ‘business income’. If income is being earned on a rental property that includes basic services such as heating, hydro, parking, and laundry, this income is usually considered rental income. On the other hand, if additional services such as cleaning, securities, or meals, are provided above basic services, then the income might be classified as business income. Remember, the more services that are provided to a rental property, the more likely that a business operation is taking place. For more information about rental and business income, check out this CRA guide available on their website.