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Tax Write Offs for the Self-Employed

April 1, 2019 Posted by Uncategorized 0 thoughts on “Tax Write Offs for the Self-Employed”

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.

Expenses Subtotal HST Total Amount
Online Marketing 500.00 65.00 565.00
Telephone 100.00 13.00 113.00
Motor Vehicle Fuel 50.00 6.50 56.50
Home Heat 70.00 9.10 79.10
Total $720.00 $93.60 $813.60

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
Online Marketing 65.00 100% 65.00
Telephone 13.00 100% 13.00
Motor Vehicle Fuel 6.50 30% 1.95
Home Heat 9.10 20% 1.82
Total $93.60   $81.77

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
  • travel

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.

 


Prepared by : Nikhil Aggarwal, CPA, CGA PMP
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.
This article offers general information only and is not intended as legal, tax, or other professional advice. A professional advisor should be consulted regarding your specific situation. While information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed.
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Sorted makes tax time easy for Self-Employed in Canada. Simply swipe to sort your business expenses, then get a summary of your business expense deductions. Plus know what sales tax you owe and when it’s due!


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