Canada Revenue agency allows self-employed individuals, including sole proprietorships, professionals and partnerships, to file their business tax returns using the free Netfile system and CRA-certified software. Many of these programs offer free tax preparation software. If your business is a corporation, you use CRA’s Efile system. You can also find CRA-approved tax preparation programs on the CRA website. However, these programs charge a fee for the software, and some charge for e-filing. If you are self-employed, a partnership or professional using free tax software, there are some tips that may help save you money and resources that can be used to grow your business.
Choose the Right Software
The free CRA-certified software products found on the website are listed according to the type of computer they can be used on, such as PC, Mac and mobile devices. Check to see that your computer can support the software. Also look to see that you choose a free program; some programs listed charge a fee. The list of products also names what the exclusions are for each software download. Some free programs do not process form T1273 for the AgriStability and AgriInvest Programs, and some are based on your income level. Also make sure you’ve selected the most current version of the software.
Before you put finger to keyboard, gather all your information for your employment earnings and for your self-employed and professional earnings. As a small-business owner or professional using CRAs Netfile system, you declare both employment and self-employment income on the same return. Ensure you have a pen, some paper and a calculator at hand, although most free tax software preparation programs will do the calculations for you. You may require a scanner to input any slips or other forms into the program.
Simplify Your Accounting
Some business owners may opt to use the cash accounting method instead of the accrual method for reporting income using Netfile. Using the accrual method, you report your income when you bill your customers. With the cash method, you claim your income when you receive your payment, not when you invoice it. This keeps your accounting simple and makes it easier to input your information into the software program. The cash method is generally used for farmers, fisherman and self-employed commissioned sales agents. If you have any questions about which method you should use, contact CRA’s helpline.
Take Advantage of Home-Based Business Deductions
You may want to calculate your allowed home-based business deductions before starting your tax preparation program. CRA allows you to deduct a portion of your house costs from your business tax return if the building in which you conduct your business is your principal place of residence. You can deduct part of your utility costs, maintenance costs, cleaning materials, property taxes, home insurance, mortgage interest, rent and applicable depreciation on business equipment. To calculate the portion of your home and expenses you can claim in your software tax return, use CRA’s “Calculation of business-use-of home expenses” chart on Form T2125. You can download it from CRA’s website. You can’t deduct these amounts elsewhere on your free preparation program. Enter the final amount of your calculation from line 3 of the T2125 chart on line 9945 of the program’s tax return.
What to Send to CRA
By law, CRA requires your business to keep and maintain originals or legible copies of all receipts, invoices and supporting documentation to back up all claims and deductions that you make on your tax returns. “You don’t have to send all your documentation to CRA when you use a free tax software program,” explains Caroline Thompson, president of Thompson Accounting and Tax in Fort Erie, Ontario. “CRA can access this information, like payroll slips, T4s, EI slips and other relevant documentation you use to complete your business return, through their computer systems. Other support documentation, such as rental receipts and mileage, you need to keep in case the request it. CRA will notify you by mail if they do,” adds Thompson.
References & Resources
- Canada Revenue Agency: E-Services for Individuals
- Canada Revenue Agency: About the Corporation Internet Filing Service
- Canada Revenue Agency: Certified Software for the 2014 NETFILE Program (2013 tax return)
- MaRS: Cash vs. Accrual Accounting
- Canada Revenue Agency: Accounting for Your Earnings
- Canada Revenue Agency: Line 9945 – Business-use-of-home expenses
- Canada Revenue Agency: Business and Professional Income 2013
- Canada Revenue Agency: Before You Start