VANCOUVER, March 8, 2017 – Being self-employed doesn’t mean you have to be on your own when it comes to filing your income tax return. To help the self-starters in our province with their income tax return, the Chartered Professional Accountants of British Columbia (CPABC) has prepared answers to some commonly asked questions.
1. What are the benefits to declaring self-employed status?
As a self-employed professional, you can generally take advantage of a wider range of available deductions in computing your taxable income than people who earn employment income. One of the benefits of being self-employed is that you are not required pay Employment Insurance (EI) premiums. This could have saved you up to $955 in EI premiums in 2016. However, this means that if your consulting contracts terminate and you are left without work, you cannot claim EI benefits.
Canada Pension Plan (CPP) contributions are still required. As well, if you are self-employed, you will need to pay the "employer’s portion" as well as your own share. The maximum amount for the combined contribution was $5,089 for 2016. You will, however, be able to claim a deduction in computing your income for the employer's portion of CPP up to the maximum of $2,544 for 2016, and a tax credit for your own share of the CPP.
Each case will depend on its facts. Keep in mind that there are other pros and cons of being employed versus self-employed.
2. I am a chiropractor who’s self-employed. Can I defer a portion of my income for tax purposes?
Chiropractors or other self-employed professionals like accountants, dentists, lawyers, or doctors, can defer a portion of their professional income for tax purposes. According to the Income Tax Act, these professionals can exclude their unbilled time, or “work in progress,” from the determination of income for tax purposes until it is actually billed. To do so, the professional need to attach a letter in their return stating that the election has been made or by clearly indicating the information on their financial statements or in an income reconciliation submitted with the return. Once made, the election is valid for all subsequent taxation years and can only be revoked with the consent of the Minister of National Revenue through your local Tax Services Office.
3. When’s my deadline for filing my income tax return?
If you are self-employed, the filing deadline for you and your spouse or common-law partner is June 15, 2017. Remember to retain your records for at least six years after the. The Income Tax Act requires every taxpayer carrying on a business to keep records and books of account for verification. So to the extent you are claiming automobile expenses, meals and entertainment costs, or any other business expenses, you should retain the documents or invoices to support your expense claim. The failure to keep adequate records is an offence that can result in conviction in a fine or imprisonment, or both.
Looking for more tips? Check out CPABC’s RRSP and Tax Tips at www.rrspandtaxtips.com.
NOTE TO JOURNALISTS: Local CPAs are available for interview. Infographic is available for reprint.
Please credit Chartered Professional Accountants of British Columbia (CPABC) for use of the content and include the following disclaimer: Tax rules relating to these RRSP tips are complex. This is not intended as tax advice and you should not make tax decisions based solely on the information presented in these tips. You should seek the advice of a chartered professional accountant before implementing a tax plan or taking a tax filing position.
About CPA British Columbia
The Chartered Professional Accountants of British Columbia (CPABC) is the training, governing, and regulatory body for almost 35,000 CPA members and 5,500 CPA students and candidates. CPABC carries out its primary mission to protect the public by enforcing the highest professional and ethical standards and contributing to the advancement of public policy. CPAs are recognized internationally for bringing superior financial expertise, strategic thinking, business insight, and leadership to organizations.
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For more information or to arrange an interview, contact:
Vivian Tse, Public Affairs Specialist