Overview of Freelance Taxes in Canada
Freelancers in Canada pay taxes differently than employees. They make estimated tax payments twice a year based on profit—total income minus expenses.
Self-Employment Tax Rate in Canada
The self-employment tax rate in Canada is 15.3% for 2022, with 12.4% going toward Canada Pension Plan contributions and 2.9% toward Employment Insurance premiums.
Tax Obligations and Business Expenses
If you earn $120,000 freelancing, you must pay income tax plus the 15.3% self-employment tax on your income. Claiming business expenses can help lower taxable income and save money.
GST/HST Requirements for Freelancers in Canada
Freelancers earning over $30,000 per year must charge and collect GST/HST. The GST rate is 5%, and HST rates vary by province. Platforms like Upwork handle sales tax collection and remittance.
Reporting Freelance Income in Canada
Freelancers must declare their income from freelancing on their income tax return using Form T2125. It’s necessary to track income and expenses, calculate taxes owed, and remit payments to the Canada Revenue Agency.
Understanding Tax Returns
Completing Form T2125 with detailed business income and expenses is crucial for accurate tax reporting. Utilizing online tax filing services and maintaining good financial records can simplify the tax filing process.