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SELF EMPLOYED PERSON'S OBLIGATIONS
by ACTMD's team
Please note that the amounts entered in this document are only as examples and may vary yearly. This document was produced in 2010.
Self employed person's obligations
After having determined whether your situation corresponds to that of a self-employed person, keep the following in mind when starting and organizing your business activities. As an independent worker you must:
- Make sure that you are operating your business with a reasonable expectation of profit;
- Become familiar with the rules respecting registration for the GST and the QST and register if applicable;
- Obtain information concerning your rights and obligations with respect to taxes, returns, remittances and various refunds, including input tax and input tax refunds.
- Obtain information concerning your rights and obligations as an employer and register for if you have employees.
- Keep records and books of account, and retain supporting documents and receipts. All personal expenses must be kept separate from business expenses.
Once your business activities have begun, among other things, you must:
- Keep your records and books up-to-date in paper or electronic form (personal entries are to be kept separate from business entries);
- File your returns by the prescribed deadlines (income tax returns, GST and QST returns, source deduction returns) and make remittances, where applicable. If you fail to comply with this obligation, you may be liable for penalties and interest;
- Take into account situations that change your status. For example, if you exceed the $30,000 limit in taxable sales, you are no longer considered to be a small supplier and, if you hire employees, your status becomes that of an employer.
Registers and supporting documents
If you operate a business in Québec, you must keep registers and supporting documents (either on paper or on electronic media) and conserve them for at least six years plus the current year. Keep all those documents at your place of business; or in your home; or in any other place designated by Revenu Québec.
Deductible Expenses from your revenues for Income Tax purposes.
Please note that this information is subject to change and may vary according to the laws in effect.
As with any other contributor, the self-employed person cannot deduct an expense unless it was made with the objective of obtaining revenue. This expense must be necessary, reasonable, have written proof (invoices, contracts, etc.) and must not represent a personal expense. Do not forget to keep all receipts.
Two types of purchases are admissible in the self-employed worker's taxes declaration. There are current expenses and the purchase of consumer goods. In general, a current expense is immediately deductible and at 100%, while the acquisition of consumer goods is depreciated. Current expenses or at rapid use represents merchandise purchased for resale, office supplies, salaries, magazine subscriptions, etc. The self-employed worker can deduct a greater amount of expenses compared to being an employee. They can deduct:
- Travel expenses used to earn revenue from a business or profession. Travel expenses include public transport, bus, taxi, train, plane, lodging and meals during your absence.
- Expenses related to the use of an automobile. Automobile expenses include gas, repairs, oil, washing, insurance premiums, license, the cost of the permit, rentals, depreciation, parking, interest on the loan to purchase the vehicle. All these expenses are deductible pro rata on the kilometres utilized for business vs the total mileage (supported by a business kilometre register).
- The cost of merchandise sold; publicity expenses; office supplies (paper, oil, sheets….); delivery charges, transportation and message handling services; membership fees; business taxes; accountant and legal expenses; bad debts; interest charges; insurance; etc.
- Employees salaries;
- A portion of the cost of long term assets such as a car, office equipment and computer material;
- Congress expenses are completely deductible but limited to two per year.
- Home office expenses are deductible on a percentage basis of space occupied by the office for business affairs. These include insurance, rent if a tenant, electricity, land taxes, mortgage interest, maintenance fees, minor repairs, cleaning and maintenance products (related to the space occupied by the office). In Québec, these expenses are deductible at 50% only, except for electricity and heating which are 100% deductible.
- Telephone expenses are deductible except if you are claiming a home office; then this expense is subject to the laws of "home office".
- Telephone, cell phone, fax, computer. If these items are rented, the expenses are deductible at 100%; if they are purchased, only the depreciation is deductible.
- Internet connection is deductible at 100%. Monthly access fees are deductible in proportion to percentage use for business.
Tax Collection and Remittance
If you carry out business activities in Québec and your business income is over $30,000, you must register for the GST and QST. Acting as Revenu Québec's agent, you must collect the GST and QST, as prescribed by law, on the goods and services you provide to your customers.
Pursuant to an agreement between the governments of Canada and Québec, Revenu Québec administers the GST within its territory. Consequently, Revenu Québec receives and processes applications for registration for the GST filed by all persons that carry out business activities in Québec.
Filing Deadline - Self-Employed Persons
The deadline for submitting your personal income tax return to Revenu Québec and Canada is April 30 of each year. However, if you or your spouse is reporting business income, you have until June 15 of each year to file your return. Nevertheless, you must pay any balance of income tax due by April 30. Otherwise, interest will be calculated on the balance as of May 1. If you file your return late, you are liable to penalties.