Tax Implications for the Self-Employed - 2024 Tax Year

If you’re self-employed or planning to start a side gig in 2024, it's important to understand the tax implications. A side business can help you earn extra income for personal goals like a vacation, new car, or a rainy day. It also offers the freedom to be your own boss and set your own schedule. However, alongside the income, you must also account for taxes, including non-taxation factors like mandatory Canada Pension Plan (CPP) contributions, which will impact your taxes when you file your return.

Self-Employed Status in Canada

In Canada, you are considered self-employed if you meet the following criteria (source: canada.ca):

The level of control you have over how you complete the work, aside from what is agreed upon in the contract.

You must provide your own tools and equipment unless stated otherwise.

You can subcontract work to others (e.g., hiring a plumber for a renovation project).

If the payer assumes all financial risk, your self-employed status may be questioned.

You are responsible for managing investments and business decisions.

You typically keep most or all of the profits from your work.

Other factors, such as written contracts, can also play a role in determining your self-employed status.

Reporting Income and Deductions

Income earned from your side business must be reported on your T1 general tax form, specifically using Form T2125: Statement of Business or Professional Activities. Your business income is added to your overall income for the year. While it might seem like this will push you into a higher tax bracket, you can reduce your taxable income through eligible business expenses.

For the 2024 tax year, here’s a breakdown of the federal tax brackets:

15% on the first $55,000 of taxable income,

20.5% on the next $55,000 (income between $55,000 and $110,000),

26% on the next $60,000 (income between $110,000 and $170,000),

29% on the next $75,000 (income between $170,000 and $245,000),

33% on income over $245,000.

As a rule of thumb, it’s advisable to set aside 25%-30% of your income for taxes.

Business Expenses You Can Deduct

When reporting business income on the T2125 form, you can deduct eligible business expenses, which reduce the amount of taxes you owe. Remember to keep receipts for up to 6 years, as the CRA may request them. Common deductible expenses include:

Advertising	Maintenance and repairs
Bad debts	Meals and entertainment
Business start-up costs	Motor vehicle expenses
Business taxes, fees, and licenses	Office expenses
Business-use-of-home expenses	Rent
Capital cost allowance (CCA)	Salaries, wages, and benefits
Delivery, freight, and express costs	Supplies
Insurance	Utilities
Interest and bank charges	Travel
Legal, accounting, and professional fees

Additional Responsibilities for Self-Employed Individuals

In addition to reporting income and expenses, self-employed individuals have additional responsibilities:

Canada Pension Plan (CPP) Contributions: If your net self-employment income exceeds $3,500, you must pay the full CPP contribution. For the 2024 tax year, the CPP contribution rate is 12.3% on self-employment income, up to a maximum of $8,317.62.

GST/HST Registration: If your business income exceeds $30,000, you must register for GST/HST. If your income is below this threshold, registration is not required. However, if you're a taxi driver or driving for ride-sharing services like Uber or Lyft, registration is mandatory regardless of income.

To register for GST/HST, contact CRA Business Enquiries at 1-800-959-5525.

Deadlines and Filing

The deadline to file self-employment taxes for the 2024 tax year is June 15, 2025. However, if you owe taxes, the payment must be made by April 30, 2025 to avoid late-filing penalties.

By keeping track of your earnings, managing deductions, and fulfilling your tax obligations, a side business can be both financially rewarding and manageable within the Canadian tax system.

You can find all the necessary forms to file your tax return online in our TaxTron Web 2023 software! Sign up and log in to file your return online or visit a Softron Tax location to have a professional prepare your return for you!