If you work for yourself
If you are self-employed, the CRA treats you as running a business: a sole proprietorship on your own, or a partnership with others. Business income includes income from a profession, commissions, a trade, farming or fishing, and any activity you carry on to make a profit. Employment income is not business income.
You report business income and expenses on Form T2125 with your personal return. The return is due June 15, but any balance owing is due April 30.
CPP, EI and instalments
- CPP. You pay both the employee and the employer share on your net self-employment income, including the second CPP on higher earnings.
- EI. Optional. You can sign up to get special benefits, such as maternity or sickness benefits.
- Instalments. If your net tax owing is more than $3,000 this year and in either of the two years before, the CRA expects instalments on March 15, June 15, September 15 and December 15.
What you can deduct
You can deduct reasonable expenses you pay to earn business income. Personal expenses are not deductible, and if something is partly personal, only the business share counts.
| Expense | What to know |
|---|---|
| Advertising | Deductible, with limits on foreign media aimed at Canadians |
| Meals and entertainment | Usually 50% of the cost |
| Vehicle | The business share of fuel, insurance, repairs, interest and lease, backed by a logbook |
| Home office | Only if you meet one of the conditions below |
| Accounting and legal fees | Including preparing your returns |
| Office expenses and supplies | Stationery, postage, small supplies used up in the work |
| Rent, utilities and phone | For business premises, or the business share |
| Interest and bank charges | On money borrowed for the business |
| Wages | Including to your spouse or child, if the work is real, the pay is reasonable and you issue a T4 |
| Bad debts | Amounts you already reported as income and cannot collect |
| Equipment, vehicles and buildings | Not deducted at once. You claim capital cost allowance over several years |
If you are registered for GST/HST, deduct expenses net of the input tax credits you claim on them.
Home office
You can deduct part of your home costs if the workspace is either:
- Your principal place of business, or
- Used only for the business, and regularly to meet clients, customers or patients.
Owners can claim a share of heat, electricity, insurance, maintenance, property tax and mortgage interest. Renters claim a share of rent and those expenses. Use a reasonable basis, such as the workspace area over the total area of the home. The claim cannot create or increase a business loss. Whatever you cannot use carries forward to next year.
Vehicle logbook
For each business trip, record the date, the destination, the purpose and the kilometres. Note the odometer at the start and end of the year, and when you buy or sell a vehicle. Keep a separate log for each vehicle. Without a log, the CRA can reduce your claim.