Reporting Self-employment Taxes in Canada

2020 is my first time filing taxes as a self-employed person in Canada. It’s also the first time in my life I filed a tax return.

I always knew it was going to be a daunting task so I tried to prepare for it as best as I could in 2019.

The usual deadline for filing taxes every year in Canada falls on May 1. Due to COVID19, it was pushed to June 1 this year.

Payment of any taxes owed was also pushed to September 1, 2020.

All the changes to 2020 dates and deadlines can be found on the Government of Canada website HERE.

How Do I File Self-employment Taxes in Canada?

Since I was filing taxes for the first time, I had two options – hire an accountant to get it done or do it myself through online tax software.

I felt it was important to do it myself the first time to understand how the process worked so I opted to use online tax software instead.

I’m registered as a sole proprietor. However, I had employment income in 2019, which required a different form (T1) from my self-employment income form (T2125).

Usually, I would also need to complete Form T1135 as well for foreign assets but because I’m a new immigrant, that part was deleted from the forms.

After some research on the CRA website, I settled on Simple Tax accounting.

Preparing for Taxes in 2019

I kept a thorough record of all my expenses and income via excel and copies of all my receipts.

I had envelopes for every month for receipts and any other business-related expenses.

For 2020, I also began using WaveApp Financial. I scan and upload all my receipts and expenses every month.

What is Simple Tax?

Simple Tax is online software you can use to prepare and file your tax returns. The interface is simple, as the name suggests, and user-friendly.

It’s designed specifically for a DIY approach to taxes and to make things as easy as possible for anyone.

Simple Tax Review

I went to the website with some trepidation knowing this is the first time and I was a bit scared I wouldn’t understand the process or make a mistake.

However, the nervousness was taken away when I encountered the simple and minimal design of the website.

I created an account and was asked a few questions about my status before the forms I needed to fill were pulled up.

I provided my name, address, family details, etc, and went on from there.

Filling the employment income part was straightforward as the companies I worked at in 2019 provided a T4.

I just had to match the figures to the relevant slots on Simple Tax.

Reporting the self-employment income was a bit of a nightmare even with having all the records because there were so many columns to fill.

I kept going back and forth between the CRA website and Simple Tax to make sure I understood exactly what something meant before entering the figures.

This part took much longer because it’s my first time. I’m sure it won’t take as much time in 2021.

I blocked off a Saturday to get it done. I started in the afternoon and completed it by late evening.

I then left it alone and came back the next day to recheck. Once I was satisfied, I downloaded a copy then submitted it to CRA.

It turned out not to be as scary as I thought it would be. If you get confused, there’s a lot of help on there as well.

Is Simple Tax Free?

Yes, it’s 100% free. However, before you submit, they ask you to pay what you think the software is worth.

You can choose not to pay for it but I didn’t do that. I entered a figure I thought was fair and paid for using the software.

My account is now all nice and set up to use again next year.

Apart from Simple Tax, people also use Turbo Tax and H & R Block to file taxes.

How Much Should I Set Aside for Self-employment Taxes?

I set aside a certain percentage of my income for taxes (about 5% every month).

Self-employment taxes aren’t usually paid upfront like regular income and I didn’t want to have a shock come tax time.

My estimate turned out to be right so I had enough for my taxes. Taxes owed on 2019 income are due by Sept 1.

Is It Easy to File Taxes Yourself?

I’m not exactly a math or numbers inclined person and I was able to file it properly via Simple Tax.

I triple-checked the details against all my receipts and income before submitting them to CRA.

I received a notification from CRA the next day via email.

However, my tax situation isn’t complicated. It’s just me, not a corporation and I don’t have any employees.

I did research accountants to have on hand in case I need one at some point or when I file 2020 taxes.

I found them via recommendations on Facebook groups and they seem to be budget-friendly and great for small businesses.

In case you’re ever looking for one, you may choose to try them out. They are:-

• Harmony Tax Services
• Books and Tax Solutions
• Art Books (for artists and entrepreneurs)
• Books in Line
• Still Counting

Please conduct your research before hiring accountants.