What can I claim on my taxes if I’m self-employed?
If you’re self-employed and registered to collect sales tax, you may be able to recover sales tax (i.e. GST/HST or QST) you paid on business-related expenses.
The recoverable GST/HST is known as Input Tax Credit (ITC) and recoverable QST is known Input Tax Refund (ITR). The total recoverable GST/HST ITC or QST ITR is reported on your sales tax return and is used in calculating net sales tax owing or refund.
If you use part of your home or vehicle to carry out self-employment activities, you may be eligible to claim additional ITCs or ITR based on the percentage of business use.
Example of sales tax deductions for a freelancer:
Mr. John Smith is a self-employed web designer in Ontario and he incurred the following expenses in December 2018. Also, he uses 30% of his vehicle and 20% of his home to carry out self-employment activities. This is an example of John’s monthly expenses and the HST he paid.
|Motor Vehicle Fuel||50.00||6.50||56.50|
John paid $93.60 in HST; however, he was using his home and motor vehicle partially for self-employment activities. Therefore, he would be only eligible to claim HST input tax credit of $81.77 on his GST/HST return. This chart shows the amount of HST he can claim based on his usage for self-employment activities.
|Expenses||HST||% of Business Use||HST ITC|
|Motor Vehicle Fuel||6.50||30%||1.95|
How Sorted can help you track your tax-deductible expenses and Input tax credits
If you are registered for sales tax, Sorted makes it easy for you to track your sales tax input tax credit. This may help to reduce the amount of sales tax that you’ll need to remit to the government. Once your profile is set up in Sorted, you just have to categorize your expenses. Sorted will do the rest by tracking your sales tax input tax credit on the transactions that you have categorized.
What are some examples of eligible tax deductions and input tax credits?
- business start-up costs
- business-use-of-home expenses
- business use fuel costs
- legal, accounting, and other professional fees
- maintenance and repairs
- meals and entertainment (allowable part only)
- motor vehicle expenses
- office expenses
- office rent
- telephone and utilities
Note that if you buy capital property (i.e. car, furniture etc.) to partially carry out self-employment activities, you might not be eligible to claim the full ITCs in the year of purchase. This is because the life of the property is longer than one year and only a percentage of it used in business.
What records are needed to support your tax write off claim?
In order to support your GST ITC or QST ITR claim, you need to have a contract or receipt. The information required on receipts vary based on the amount of the receipt.
|Receipt information required||Under $30||$30 to $149.99||$150 or more|
|Supplier’s business or trading name||Yes||Yes||Yes|
|Date of invoice or, if no invoice issued, the date tax is paid or payable||Yes||Yes||Yes|
|Total amount paid or payable||Yes||Yes||Yes|
|An indication of the total amount of GST/HST charged or that the amount paid or payable for each item||No||Yes||Yes|
|An indication of which items are taxed at the GST rate and which are taxed at the HST rate||No||Yes||Yes|
|The supplier’s business number (BN) or an intermediary’s BN||No||Yes||Yes|
|Your name or trading name or the name of their authorized agent or representative||No||No||Yes|
|A brief description of the goods or services||No||No||Yes|
|Terms of payment||No||No||Yes|
Tax tip: You need to keep all required records and supporting documents (i.e. soft or hard copy) for a period of seven years in case you get audited.
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Nikhil Aggarwal is a CPA, CGA and a Tax expert. He strongly believes in transforming obstacles into opportunities and loves working with businesses, entrepreneurs and individuals. He has over 10 years of experience in accounting, taxation and technology. He has a proven track record of delighting the clients by finding over $20 million in tax savings. Nikhil has also completed Canadian In-depth Tax Course, which is the most comprehensive tax training program in Canada.