Self-employed Business, Professional, Commission, Farming, and Fishing Income: Chapter 1 – General information – Canada.ca

farm icon A business and business income

A business is an activeness that you intend to carry on for profit and there is tell to support that intention .
A business includes :

  • a profession
  • a calling
  • a trade
  • a manufacture
  • an undertaking of any kind
  • an adventure or concern in the nature of trade

For more information, see Interpretation Bulletin IT-459, Adventure or Concern in the nature of Trade .
In this usher and for other report purposes, we treat professional activities as a separate commercial enterprise class.

If any of your income earning business activities takes place on a military reserve, some of your business income might be exempt from tax. For more data, go to Information on the tax exemption under section 87 of the Indian Act – Business Income .
clientele income includes income from any activity you do for profit. For exemplar, the income from a servicing business is business income .

Gift cards or certificates

giving cards or certificates could be cards, vouchers, receipts or tickets that have a monetary value. They are an alternative to paying cash for goods and services .
When you sell a give wag or certificate :

  • you must report the amounts you receive from the sale on the day they were sold as business income
  • you may choose to calculate what we call a “reserve” as a deduction against this income

Note

A substitute is the amount of endow cards or certificates that you predict will be redeemed after the end of your fiscal class. When it ‘s deducted against the business income it must be added rear to the next year ‘s business income. You can choose to calculate it or not .

business icon Note for professionals

If you presently carry on a indicate professional business and use billed-basis account, the billed-basis accounting method acting has changed. For more information, attend changes to the Election to exclude your WIP .

Cash method

farm icon Note for farmers

You can use the cash method acting of accounting for your farming activities, but must use the accumulation method acting for separate occupation activities or for GST/HST/QST purposes. You must keep a separate plant of records for each account method acting that you use .
When you use the cash method you must :

  • report income in the fiscal period you receive it
  • deduct expenses in the fiscal period you pay them

For special rules, see Prepaid expenses .
If you use the cash method and receive a post-dated cheque as security for a debt, include the sum in income when the check is account payable .
If you receive a post-dated check as an absolute payment for a debt and the check is account payable before the debt is ascribable, include the come in your income on one of the following dates, whichever is earlier :

  • the date the debt is payable
  • the date you cash or deposit the cheque
Note

The post-dated check rules apply to income-producing transactions, such as the sale of grain or fish. They do not apply to transactions involving capital property, such as the sale of a tractor or boat .
When you use the cash method acting, do not include inventory when you calculate your income. There are, however, two exceptions to this convention .
For more information on the cash method acting for farming or fish income and the exceptions, see Interpretation Bulletin IT-433, Farming or Fishing – Use of Cash Method .

Accrual method

When you use the accumulation method acting you must :

  • report income in the fiscal period you earn it, no matter when you receive it
  • deduct expenses in the fiscal period you incur them, whether or not you pay them in that period

Incur normally means you either paid or will have to pay the expense .
For extra rules, see Prepaid expenses .
When you calculate your income using the accumulation method acting, the value of all inventories, such as livestock, crops, feed, fertilizer, pisces, pisces by-products, supplies and then on will form part of the calculation. Make a list of your inventory and count it at the end of your fiscal period. Keep this list as separate of your business records .
You can use one of the come methods to value your inventory :

  • Value all inventory at its fair market value (FMV). Use either the price you would pay to replace an item or the amount you would get if you sold an item.
  • Value individual items at cost or FMV, whichever is less. You can value items by group when you cannot easily tell one item from another. Cost is the price you incur for an item, plus any expenses to get it to your business location and put in a condition of use for your business.
  • For farmers, value livestock according to the unit price base. For this method, fill in  shape T2034, Election to Establish Inventory Unit Prices for Animals.

Use the lapp method you used in by years to value your inventory. The value of your inventory at the start of your 2021 fiscal period is the same as the value at the end of your 2020 fiscal menstruation. In your first year of operating a occupation, you will not have an opening armory at the starting signal of your fiscal period .
For more information on inventories, see Interpretation Bulletin IT-473, Inventory Valuation .

farm icon fish icon Note for farmers and fishers

If you use the accumulation method to calculate your farm or fish income, calculate your monetary value of goods sold individually. Form T2042 or Form T2121 does not have a line to calculate this measure .

Changing your method of reporting income

If you decide to change your method of reporting income from the accrual method to the cash method, use the cash method when you file your future income tax render. Make certain you include a affirmation that shows each alteration made to your income and expenses because of the remainder in methods .
If you decide to change from the cash method to the accrual method :

  • get permission from your tax services office
  • ask for this change in writing before the date you have to file your income tax return
  • explain why you want to change methods in your letter

The cash and accumulation methods are different. The foremost clock you file your income tax return using the accumulation method, make sure you include a statement that shows each adjustment made to your income and expenses .

Business records

You are required by law to keep records of all your transactions to be able to support your income and expense claims. A phonograph record is defined to include an account, an agreement, a book, a chart or postpone, a diagram, a form, an image, an bill, a letter, a map, a memo, a plan, a return, a statement, a telegram, a voucher and any other proof containing information, whether in writing or in any early shape .
Keep a record of your daily income and expenses. We do not issue read books nor suggest any type of script or rig of books. There are many record books and bookkeeping systems available ; you can use a bible that has columns and branch pages for income and expenses .
Keep your twin deposit slips, bank statements and cancelled cheques. Keep separate records for each occupation you run. If you want to keep computerize records, make sure they are clear and easy to read .

Note

Do not send your records with your income tax return key. however, do keep them in case we ask to see them at a late date .

Benefits of keeping complete and organized records

You can benefit from keeping complete and organized records. For exemplar :

  • When you earn income from many places, good records help you identify the source of income. If you keep proper records, you may be able to prove that some income is not from your business or that it is not taxable.
  • Keeping good records will remind you of expenses you can deduct when it is time to do your income tax return.
  • Good records will keep you better informed about the past and present financial position of your business.
  • Good records can help you budget, spot trends in your business and get loans from banks and other lenders.
  • Good records can prevent problems you may run into if we audit your income tax returns.

Consequences of not keeping adequate records

If you do not keep the necessary information and you do not have any other proof, we may have to determine your income using other methods .
We may besides disallow expenses you deducted if you can not support them .
There are penalties for not keeping adequate records, for not giving the CRA access to your records when requested and for not giving information to CRA officials when asked .

Income records

Keep track of the gross income your business earns. Gross income is your total income before you deduct any expenses, including those related to the goods sold. Your income records must include the date, total and reference of the income. Record the income whether you received cash, place or services. Support all income entries with master documents .
original documents include :

  • sales invoices
  • cash register tapes
  • receipts
  • bank deposit slips
  • fee statements
  • contracts

farm icon Original documents for farming besides include cash purchase tickets from the sale of grain and check stub from market boards .
fish icon Original documents for fishing include sales slips for each landing, trip settlement sheets and slips or records of sale to the public, retailers and restaurants .

Example

The follow sales daybook is an exemplar of how to record your income for one calendar month. The provincial sales tax ( PST ) rate for your province is 8 % and the goods and services tax ( GST ) rate is 5 % :

Record of daily sales particulars
not applicable Date Particulars Cash sales (1) annotate1 Credit sales (2) footnote1 Sales returns (3) footnote1 Total sales (4) footnote1 GST (5%) (5) footnote2 PST (8%) (6) annotate2 Payment on account (7)
1 July 1 Daily sales $ 146.00 $ 27.00 $0 $ 173.00 $ 8.65 $ 13.84 $ 10.00
2 July 2 Daily sales $ 167.00 $ 36.25 $ 26.00 $ 177.25 $ 8.86 $ 14.18 $0
3 July 3 Daily sales $ 155.02 $19.95 $10.01 $ 164.96 $8.25 $13.20 $32.40
4 July 4 Daily sales $ 147.00 $29.95 $0 $176.95 $8.85 $14.16 $0
Footnote 1
GST and PST or harmonized sales tax ( HST ) are not included .
rejoinder to footnote1 Referrer
Footnote 2
If you sell in one of the active provinces, the HST replaces the GST and the PST .
recurrence to footnote2 Referrer

In this exemplar on July 1, you add up the sales invoices and cash register tapes. You find that you had cash sales of $ 146 and sales on bill of $ 27. In your sales journal, you record the cash sales in column 1 and the accredit sales in column 2. No merchandise was returned on July 1, so you leave column 3 blank. In column 4, enter the entire of your cash sales and your credit sales, minus merchandise returned for that sidereal day .
In column 5 and 6, enter the total of GST and PST you charged on your sales. In column 7, keep track of cash payments received for previous credit sales. Do not include these payments in the day by day sales figures .

Issuing receipts as a daycare provider

For daycare, you are expected to issue receipts to the parents of the children in your care. You should do this equally soon as possible to give them meter to file their income tax returns. By law, the receipts you issue must include all the follow data :

  • the name of the person you are preparing the receipt for
  • the name of the child of the person you are preparing the receipt for
  • the amount you received for your services
  • the period you provided these services (from and to dates)
  • your name
  • your address
  • your social insurance number
  • your signature
  • the date you signed the receipt

Expense records

Always get receipts or early vouchers when you buy something for your business. The receipts have to show the watch :

  • the date of the purchase
  • the name and address of the seller or supplier
  • the name and address of the buyer
  • the full description of the goods or services
  • the vendor’s business number if they are a GST/HST registrant when the purchase price is $30 or more (before tax)

You were asking?
Q. What should I do if there is no description on a reception ?
A. When you buy something, make sure the seller describes the item. however, sometimes there is no description on the receipt, as with a cash register tape. In this character, you should write what the item is on the receipt or in your expense records .
Q. What should I do if a supplier does not want to give me a receipt ?
A. When you buy something, make sure you get a acknowledge. Farmers or fishers must obtain documentation to support the transactions they enter in their books and records. Your transactions may be denied if you do not have the proper software documentation to support your purchases. For more information, see Guide RC4022, General Information for GST/HST Registrants .
Keep a record of the properties you bought and sold. This criminal record should show who sold you the property, the cost and the date you bought it. This information will help you calculate your capital price allowance ( CCA ) and other amounts. chapter 4 explains how to calculate CCA .
If you sell or trade a property, show the date you sold or traded it and the come of the requital or credit from the sale or trade-in .

Example

The stick to expense journal is an exemplar of how to record your expenses for one calendar month :

How to record daily expenses for one month
Date Particulars Cheque No. Bank GST (5%) Purchases Legal & Acct. Adv. Permit Repairs Capital items
July 1 XYZ Radio 407 367.50 17.50 0 0 350.00 0 0 0
July 1 Smith Hardware 408 26.95 1.28 0 0 0 0 25.67 0
July 2 City of Ottawa 409 157.50 7.50 0 0 0 150.00 0 0
July 3 Andy’s Accounting 410 262.50 12.50 0 250.00 0 0 0 0
July 5 Wholesale Supply Inc. 411 1,836.60 87.46 1,749.14 0 0 0 0 0
July 5 Ed’s Used Cars 412 1,575.00 75.00 0 0 0 0 0 1,500.00

fish icon Example of how to record fishing expenses

Summary Sheet for a Fishing Boat – Fishing on a Share Basis
Date Gross stock Boat share Oil Bait Ice Food Captain’s commission Crewman No.1 Crewman No.2 Crewman No.3 Crewman No.4 Totals
February 14 $10,000 $4,000 $300 $400 $200 $300 $200 $1,150 $1,150 $1,150 $1,150 $10,000
March 10 $30,000 $12,000 $300 $400 $200 $300 $600 $4,050 $4,050 $4,050 $4,050 $30,000
March 19 $20,000 $8,000 $300 $400 $200 $300 $400 $2,600 $2,600 $2,600 $2,600 $20,000
Totals $60,000 $24,000 $900 $1,200 $600 $900 $1,200 $7,800 $7,800 $7,800 $7,800 $60,000
Summary Sheet for Boat and Other Expenses
Date To whom paid Boat repairs Engine repairs Electrical equipment repairs Radar rental Insurance Interest on loan Nets, traps, twine Wages Other Description Other Amount
January 19 Shipyard $1,500 $900                
February 3 X Suppliers Ltd.             $600      
March 31 Rental services       $800            
March 31 Fishermen’s loan         $2,250 $945        
April 4 L. Electronics     $85              
April 12 B. Garage                 Car repairs $75
May 2 J.G. Smith               $120    
May 16 L. Electronics                 Sounder $3,000
Totals $1,500 $900 $85 $800 $2,250 $945 $600 $120 $3,075
Summary Sheet for Sales Other Than From Fishing on a Share Basis
Date To whom sold Gross landings Deducted from sales proceeds Net cash received
Gas Bait Other
January 16 Fish Packers $1,000 $36.50 $74.90 $20 $868.60
January 20 Fish Packers $800 $20.00 $36.00 $10 $734.00
January 21 J. Restaurant – no fish slip $100       $100.00
January 25 Fish Packers $940 $32.00 $56.00 $12 $840.00
Totals $2,840 $88.50 $166.90 $42 $2,542.60
Summary Sheet for Expenses (other than those deducted on fish slips)
Date To whom paid Boat repairs Engine repairs Wages paid Bait Gas for boat Rope Motor vehicle expenses Materials, traps, nets Other Description Other Amount
January 4 X Suppliers           $25   $85    
January 5 Shipyard $300                  
January 7 Provincial gov.                 Fishing Licence $7
January 7 B. Insurance             $280      
January 9 X. Service Station             $16      
January 12 F. Jones     $85              
January 31 Fishermen’s loan                 Interest $175
Totals $300   $85     $25 $296 $85   $182

Use the totals to fill in Form T2121, Statement of Fishing Activities .
For more information on how to keep your clientele records, the prison term limits, and to learn more about the benefits of keeping records arrant and organized, go to Keeping records .

Instalment payments

As a freelance individual, you may have to pay an installment payment. In most cases, we will send you an installment reminder showing an episode amount we have calculated for you .
You can view your episode reminders using one of the succeed :

  • My Account for Individuals, for income tax instalments
  • My Business Account, for GST/HST instalments

farm icon fish icon If you earn farming and fish income, installment payments are due December 31 .
business icon If you earn commercial enterprise, professional or commission income, installation payments are due March 15, June 15, September 15, and December 15 .

Note

If any of the dates mentioned above descend on a Saturday, a Sunday or a populace vacation, you have until the next commercial enterprise day to make your episode payments .
You may have to pay matter to and a punishment if you do not pay the full installment sum you owed on time .
For more information on installation payments and episode interest charges, go to Paying your income tax by instalments .

Dates to remember

February 28, 2022 – If you have employees, file your 2021 T4 Summary and T4A Summary. besides, give your employees their copies of the T4 and T4A slips .
business icon March 15, 2022 – Make your first 2022 episode payment if you earn occupation, professional, or deputation income .
March 31, 2022 – Most partnerships with individuals as partners file a partnership data retort. however, there are exceptions, see Guide T4068, Guide for the Partnership Information Return ( T5013 Forms ) .
April 30, 2022 – Pay any proportion owe for 2021. besides, file your 2021 income tax return if the expenditures of your business are chiefly the cost or the das kapital cost of tax shelter investments .
June 15, 2022 – File your 2021 income tax return if you have self-employment income, or if you are the spouse or common-law spouse of person who does, unless your business expenditures are chiefly the price or the capital cost of tax shelter investments. Remember to pay any balance owing due by April 30, 2022, to avoid sake charges .
business icon June 15, 2022 – Make your moment 2022 installation payment by this date if you earn business, professional, or commission income .
business icon June 30, 2022, or the period end date plus 6 months – If your commercial enterprise is in the construction diligence and hires subcontractors, you may have to file a 2021 T5018 information render, that consists of Form T5018SUM, Summary of Contract Payments, and the related T5018 slips, to report your payments .
For more information, go to Information for payers of the T5018 .
business icon September 15, 2022 – Make your third 2022 installation requital by this date if you earn business, professional, or committee income .
business icon December 15, 2022 – Make your fourthly 2022 installation payment by this date if you earn commercial enterprise, professional, or committee income .
farm icon fish icon December 31, 2022 – Pay your installment payment if you meet the follow conditions :

  • your main source of income in 2022 is self-employment income from farming or fishing
  • your net tax owing is more than $3,000 in each of 2020, 2021, and 2022 ($1,800 if you live in Quebec on December 31 for any of those years)

For more information on paying your income tax by instalments, go to Paying your income tax by instalments .

Note

If any of the dates mentioned above accrue on a Saturday, Sunday or a populace vacation, you have until the next business day to file your return or make your payment .

Employment insurance premiums

As a freelance person you may be eligible to contribute to employment insurance ( EI ) for yourself. You may register to participate if you meet the eligibility criteria defined by Service Canada .
Beginning in the year you register, your EI premiums will be calculated on your income tax return for that year. If you register in 2021 to participate in this course of study, premiums for 2021 will be calculated on your 2021 income tax reelect and will be account payable by April 30, 2022 .
subsequently, if you pay your income tax by instalments, EI premiums may be included in your installation payments .
When you register for the EI program, EI premiums will be collectible on your self-employment income for the entire class, regardless of the date you register. For case, whether you register in April 2021 or December 2021, you will pay EI premiums on your self-employment income for the entire 2021 year .
EI premiums are account payable on the sum of your self-employment earnings up to an annual maximum amount. The annual utmost come for 2021 is $ 56,300 .
Claim your peasant or territorial non-refundable tax accredit for the EI premiums on the peasant or territorial imprint 428 at line 58305 .
For more data, visit Service Canada .

Goods and services tax/harmonized sales tax (GST/HST)

generally, you must register for the GST/HST if your cosmopolitan gross revenues from your taxable supplies of property and services and those of your associates are more than $ 30,000 in a single calendar quarter or over four straight calendar quarters. taxable supplies of property and services include those that are subject to GST/HST at the applicable rate and those that are taxed at 0 % ( zero-rated ) .
Do not include in your calculation any revenues from sales of das kapital place, supplies of fiscal services or good will from the sale of a clientele .

Note for daycare

If you provide wish and supervision in your home to children 14 years of age or under for periods of normally less than 24 hours per day, your daycare service is excuse from GST/HST. If your merely business natural process is operating a daycare, you broadly can not register for GST/HST purposes .

Note

If your crying tax income is equal to or less than $ 30,000, you do not have to register for GST/HST purposes. If you are making taxable supplies in your business, you can register if you want to. If you are registered, you may be eligible to claim input tax credits .
If you carry on a taxi commercial enterprise or provide commercial ride-sharing services, you must register for the GST/HST careless of your income..

Note

The personnel casualty carry-over period is 20 years for non-capital losses, farm or fish losses, restricted farm losses and animation insurance company ‘s canadian life investment losses incurred .
For exemplar, if in 2021 you receive a GST/HST rebate for the 2020 tax class, you have to include the amount of the rebate on your income Tax and Benefit Return for 2021 :

  • Report at line 9974 of Form T2125, T2042 or T2121 the GST/HST rebate amount for partners that pertains to eligible expenses other than the CCA.
  • In column 2 of “Area A – Calculation of CCA claim,” reduce the UCC for the beginning of 2021 by the rebate part that relates to the eligible CCA.

For more data about the GST/HST rebate, go to GST/HST rebate for employees and partners .

Example

Patrick is a partner in an Alberta partnership called ABC Contracting. The partnership is registered for GST/HST and has a December 31 year-end. Under the partnership agreement, Patrick is required to personally pay his motive fomite expenses. Patrick ‘s GST/HST fraction is ( 5 ÷ 105 ) .
The succeed are his 2021 motor vehicle expenses. He did not receive an allowance or reimbursement for these expenses .
total eligible expenses other than CCA

$3,150.84

CCA

5,100.00

sum eligible expenses including CCA

$8,250.84

Patrick calculates the GST/HST rebate for partners :
$ 8,250.84 x ( 5 ÷ 105 ) = $ 392.90
The come $ 392.90 is Patrick ‘s partner GST/HST rabbet amount .
He files Form GST370, Employee and Partner GST/HST Rebate Application, and includes $ 392.90 at pipeline 45700 on his 2021 tax render .
Patrick calculates the GST/HST rebate for partners related to his eligible expenses other than CCA :
$ 3,150.84 x ( 5 ÷ 105 ) = $ 150.04
$ 150.04 is the GST/HST rabbet for partners related to his eligible expenses early than CCA .
When filing his 2022 tax come back, he will include this total on credit line 9974 of Part 5 of his Form T2125, Form T2042 or Form T2121. Patrick besides calculates the amount of the GST/HST rabbet for partners that relates to CCA :
$ 5,100 x ( 5 ÷ 105 ) = $ 242.86
On his 2022 tax return, he will reduce the 2022 beginning UCC of his centrifugal vehicle by $ 242.86 in column 2 of Area A .

Investment tax credit

An investment tax credit ( ITC ) lets you subtract separate of the monetary value of some types of property you acquired or expenditures you incurred from the taxes you owe. You may be able to claim this tax accredit in 2021 if you :

  • acquired qualifying property
  • incurred qualifying expenditures
  • were allocated renounced Canadian exploration expenses
  • for farmers, acquired monies paid to agricultural organizations through check-offs, levies or cash assistance

You may besides be able to claim this tax credit rating in 2021 if you have unused ITCs from former years .

Atlantic Investment Tax Credit

The Atlantic Investment Tax Credit is based on assign percentages available for certain investments in raw buildings, and new machinery and equipment used in the Atlantic Canada and Atlantic Region .

Scientific research and experimental development

You can receive scientific research and experimental development ( SR & ED ) ITCs on qualify expenditures. You can receive them in the shape of a cash refund or a reduction of tax account payable or both. Unused SR & ED ITCs can be carried back three years or carried advancing 20 years.

Mineral exploration tax credit (METC)

Certain renounced canadian exploration expenses qualify for this ITC. You must subtract the come of any allowable peasant tax accredit .

Apprenticeship job creation tax credit

The apprenticeship job creation tax credit ( AJCTC ) is a non-refundable ITC. The total of the credit is added to the ITC and is available to reduce union taxes account payable for the tax class .
For more information about ITCs and to claim them, see Form T2038 ( IND ), Investment Tax Credit ( Individuals ) .

Related Posts