Start freelancing in the Canada

The term “freelance”, in and of itself, does not have actual legal standing in Canadian business. Instead, many freelancers are self-employed and operate a sole proprietorship. If you’re thinking of setting up your freelance business in Canada, here are the basics you need to know.

Where to get started

If you're just starting out as a freelancer in Canada, the first thing you'll need to do is consider the options you have:

• Sole Proprietorship: This is the simplest business structure where you and your business are considered one and the same. You are responsible for all aspects of the business including liabilities and debts. You’ll have to register your business with the Canada Revenue Agency (CRA). This can be done by filing a Business Number (BN) application, which will give you a unique number for your business that you'll need for tax purposes. You can apply for a BN online or by mail.

• Partnership: This is a business structure where two or more individuals share ownership and control of the business. Partnerships can be General, Limited or Limited Liability, according to the number of liable partners. To establish a partnership of any kind, you’ll need to register with your provincial or territorial government.

Where to declare, what, and how much

As a sole proprietor, you'll need to file a self-employed tax return, which includes both your income tax and your self-employed tax (which is equivalent to the Canada Pension Plan and Employment Insurance contributions that an employer would pay on your behalf). You'll also need to file a T2125 form to report your business income and expenses. It's important to keep accurate records of all your income and expenses, as this will help you to determine how much you owe in taxes.

If you’ve established a Partnership, you’ll need to file a T5013 partnership information return each year and each partner will report their share of the partnership income on their personal tax return. Regardless of the nature of the partnership, your share of the income will be taxed at your personal tax rate.

When to start filing GST/HST

There is, in general, no requirement to charge or collect VAT as a freelancer. Still, if your business generates more than $30,000 per year, you'll be required to register for and collect the Goods and Services Tax (GST) or the Harmonized Sales Tax (HST) from your customers. Once registered, you'll need to file regular GST/HST returns and remit any taxes collected to the CRA.

When to change company structure

As your business grows, you may want to consider changing the structure of your company. For example, you may want to form a limited partnership, limited liability partnership to further limit your liability. This can provide you with additional legal protection and tax benefits. However, it's important to consult with a tax professional and lawyer before making any changes to your business structure.

What to write on quotes/invoices?

When creating quotes and invoices for your clients, it's important to include your business name and BN, as well as the client's name and contact information. You should also include the date of the quote/invoice, a detailed description of the services or products provided, and the total amount due. If you're collecting GST/HST, be sure to include that amount on the invoice as well. Additionally, it's important to keep accurate records of all quotes and invoices, as this will help you to track your income and expenses.

More information

For more information on taxes for freelancers in Canada, be sure to check out the Canada Revenue Agency website (www.cra-arc.gc.ca). The CRA has a variety of resources available for small business owners, including tax forms, publications, and online tools. Additionally, the website provides information on self-employed taxes, GST/HST, and business structures. This is an essential resource that every freelancer should have on hand.

Back to Guide Home Page