Self-employed individuals are allowed by the Canada Revenue Agency to claim a host of expenses provided they are used to generate reasonable income. According to Ronald Watson, a chartered accountant in Fort Erie, Ontario. “Income Tax Rates For Self-Employed individual are the same as personal tax rates for employed workers.” With a small difference, Watson adds. “Someone who owns a personal business has deductions that can be more than the average wage earner.” The income earned from self-employment can be from a sole proprietorship or a partnership. If your business is incorporated it is not considered a self-employment situation.
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2018 Tax Rates For Self Employed In Canada
You can file your personal income tax return as a business owner and pay the same amount of tax as any employed wage earner. Your business income, after deductions has been made, is considered your annual wage, you report it as a business or professional income. Canada has a progressive income tax, and the federal tax rate on personal income for 2018 tax year are as follows:
- The first $45,282 of taxable income is taxed at 15 percent.
- The next $45,281 is taxed at 20.5 percent (the portion of taxable income between $45,282 and $90,563).
- The next $49,825 is taxed at 26 percent (the portion of taxable income between $90,563 and $140,388).
- The next $59,612 is taxed at 29 percent (the portion of taxable income between $140,388 and $200,000).
- Income over $200,000 is taxed at 33 percent.
Provinces and territories, except for Quebec, their income tax should be calculated the same way. For instance, in Ontario:
- The first $41,536 of taxable income is taxed at 5.05 percent.
- The next $41,539 — 9.15 percent.
- The next $66,925 – 11.16 percent.
- The next $70,000 – 12.16 percent.
- Amounts over $220,000 – 13.16 percent.
Definition Of A Business
The definition of a business under Canadian tax law is “a profession, a calling, a trade, manufacture, undertaking of any kind what so ever or an adventure or concern in the nature of trade.” It must be entered into with expectations of turning a profit which must be reasonable, and there must be evidence to that extent. The profit you generate from any activity is regarded as a business income and must be declared. A good business must have a definite start date. As of this date, you can deduct expenses against the profit. CRA reviews each business on its own merits when defining the business’s start date.
There’s a very broad brush stroke that can be used to claim expenses against your business income. Whatever that can be use to make a profit is potentially deductible. The CRA allows a multitude of business expenses to be deducted from salaries and benefits, traveling expenses, goods for retail sale, attorney and accounting fees, rent, leases, bank charges and maintenance. You can deduct portions of your mortgage payments if your business is located in your home. This include, rent, utilities, repairs, upgrades and property tax. The percentage that will be deducted will be determined by the amount of space you use to carry on your venture. If you use your car to do business, including lease payments, maintenance, parking and depreciation of the vehicle, the expenses of the car may be deductible. All of these deductions help reduce your taxable income and thereby your taxable rate.
Filing As A Partnership
A partnership does not file income tax on its earnings and is not required to pay tax. The income earned from a partnership business is divided between the partners, and each respective partner is responsible for filing his/her own return. The income, deductions as well as any other credits or losses are divided according to the partnership agreement in place. Each share of income must duly be reported whether it was received as a credits or in cash.
You can also see who is required to file an income tax in Canada.