Taxes for Freelancers in Canada
GST? HST? PST? If you’re a freelancer based in Canada it can be challenging to make heads or tails of the different types of taxes you might be responsible for tracking and reporting. Our own Ryan Battles chats with Canadian freelancer Matt Inglot who helps shed some light on the subject. Matt hosts the Freelance Transformation podcast and can be found on Twitter at @mattinglot. Thanks for your time Matt!
Here are a few key notes from the conversation:
- Many freelancers start off as a "sole proprietor", where you can essentially start offering your services for a fee, and claim that miscellaneous income on your personal tax return.
- Talk to your accountant about key expenses that you can be taking for your business. In general, any software that you are using, hardware, office supplies, the money you are spending on clients, a portion of your house if you work out of the home, travel expenses and mileage, etc.
- In the US, you can form an LLC, which can be taxed the same as a sole proprietorship, but offers more legal protection.
- You may eventually want to form a corporation, where you pay yourself a wage and the corporation itself is treated as a legal entity. There can be some tax advantages here, as well as increased legal protection against your personal assets.
- Corporations require shareholder meetings, even if you are the only employee, but a lawyer can help you keep that paperwork in order. Often times the savings of a corporation more than pay for the accounting and legal counsel required.
- The GST is a tax that applies to most supplies of goods and services in Canada.
- In some provinces, there may also be a provincial sales tax (PST) or a retail sales tax (RST) in place.
- In some provinces, harmonized sales tax (HST) is imposed in provinces that have harmonized their provincial sales tax with the GST. These provinces are referred to as “participating provinces.”
- The province the client is located in determines the rate of PST/GST that you collect.
- When you get GST registered in Canada, you no longer have to pay GST on expenses for your business.
- As always, make sure you talk to an accountant to verify that you are on the right track with everything and to uncover any additional savings that you can apply to your business!