Tax Preparation Guide for Self-Employed in Canada
Here is our tax guide for Self-Employed and Freelancers in Canada to maximize deductions and reduce tax liability.
Pay yourself and, family members who provide services to the business, a reasonable salary before year-end. This income will provide additional room for the 2021 RRSP contribution and provides a tax deduction to the business in 2020.
Purchase of new assets in 2020 will allow capturing increased CCA deduction because of Accelerated Investment Incentive (AII) for the first year, to use as a tax benefit.
Capital Gains Reserve:
If you are in a real estate or shares business, structure the sale of capital property in a way that proceeds are received over several years to defer a portion of the capital gain by claiming a reserve (ITA 40(1)(a)(iii)).
Tracking Motor Vehicle Use:
Maintain your automobile logbook to support motor vehicle expense and taxable benefit calculations. A logbook maintained for a sample period will be sufficient for CRA purposes in certain circumstances.
Quarterly Tax Installments:
The final quarterly installment of tax for individuals is due on December 15, 2020.
Private Health Service Plan Premiums:
Determine the deduction of private health service plan (PHSP) premiums paid. If premiums are not deductible then these paid premiums could be claimed as a medical expense.
Due to COVID-19, the EI program has been temporarily enhanced by easing eligibility requirements. Consider electing the EI program to be eligible for maternity, parental, sickness, or compassionate care benefits.
Pooled Registered Pension Plan:
Join a pooled registered pension plan (PRPP), which is a voluntary saving plan like a defined-contribution RPP or group RRSP.
Incorporation of Business:
Incorporating your business could give you the advantage of potential tax and commercial benefits.