Tax tips for freelancers, consultants and workers with a side hustle

Tax differences between a corporation and sole proprietor

Most small businesses start as sole proprietors, which is when you run the business on your own and it's unincorporated. Broadly speaking, incorporation means registering your business as a separate legal entity, allowing it to file taxes independently.

“As a sole proprietor, the details about your business are included on your own personal tax return. Any profit you make is added to your taxable income and any losses are deducted from your taxable income,” explains Stefanie Ricchio, CPA, tax expert and spokesperson for TurboTax Canada.

As a sole proprietor, you can file your taxes yourself, however, using a tax solution like TurboTax can help by suggesting credits and deductions.

“Every dollar of your hard-earned money matters. TurboTax can help get you the biggest refund possible or minimize what you owe so you have more money to achieve your future business goals,” Ms. Ricchio says.

If you decide to incorporate your business, then you must file a separate tax return, called a Corporation Tax Return, or T2, for the business itself. Your personal income and tax credits stay on your personal return, while the business's income, tax credits, and deductions remain on the corporate tax return. If you pay yourself as an employee of the corporation, the company needs to issue you a T4 that you'll include on your personal income tax return. A T2 return is more complex, so it's best to talk to a tax advisor rather than complete the return on your own, Ms. Ricchio says.

When you need to register for a GST/HST number

If your total taxable revenue from your freelance work and other sources is more than $30,000 in one quarter, or over the previous four or fewer consecutive quarters, then you need to register for the GST/HST. It also means you have to charge GST/HST on your goods and services, which can include consulting, graphic design, content creation or writing services. You also need to register for a GST/HST if you are selling anything.

If your income is less than $30,000, you don't need to register for a GST/HST number. Some suppliers are exempt from the GST/HST so check out the list on the Canada Revenue Agency (CRA) website.

If you registered for a GST/HST account and have to start reporting in 2024, then you must file your returns electronically—with exceptions for charities or some financial institutions—or the CRA may charge you a penalty.

Expenses you can claim

“Any money spent to start or run a business is considered a business expense and is likely able to be filed on a tax return as a deduction,” Ms. Ricchio says. She notes these expenses can include what's physically needed to run a business, to upkeep a business space and help you get to work, conferences or meetings.

Typical office expenses include supplies, Internet, mobile phone charges, shipping costs and rent. If you have employees, your expenses include salaries, wages and benefits. Marketing and advertising costs, legal, accounting and other professional fees – including accounting and tax preparation software – are also deductible, Ms. Ricchio notes.

You can also claim transportation costs including vehicle expenses related to business travel, and travel expenses such as public transit fees, hotel costs and conference fees.

“While most entrepreneurs know they can deduct basic costs like office supplies and rent, many valuable deductions and credits go unnoticed,” Ms. Ricchio says.

Examples of key expenses that are missed include bank charges, insurance, property taxes, interest on money borrowed for business purposes, business licences or other fees to professional organizations.

The bonus of business tax credits

“There are more than 80 individual industry and province-specific tax credits a small business can take advantage of, so it's helpful to browse through them on the CRA website,” Ms. Ricchio says. These can include tax credits for research and development, input tax credit (ITC) to recover any goods and services tax/harmonized sales tax (GST/HST) paid on purchases or expenses related to your business, and an array of credits depending on which province you're located in.

TurboTax has also put together a list of key small business credits to help you keep track of the credits and grants you can take advantage of.

“These are tax credits available to those who are not corporations, to help reduce the income your business owes taxes on,” Ms. Ricchio says, noting that it can also be helpful to seek expert help to ensure you're getting every deduction you deserve.

She says with TurboTax Full Service, Canadians can have their taxes prepared, signed and filed by an experienced tax expert to help them achieve the best tax outcome.

Be aware of the potential for an audit

Audits are a routine part of the CRA's operations to ensure companies are complying with tax rules. The CRA chooses companies to audit based on certain risk factors, industry comparisons and random selection.

“If flagged, the CRA might conduct a simple review where they will send a request for additional information to resolve the matter – like verifying an HST filing – or a full audit of your financial records,” Ms. Ricchio explains.

If you get audited, the CRA will contact you to set up a meeting and you'll need to provide detailed financial records. If your files are in order, everything should go smoothly. However, if there are discrepancies, the auditor may request additional information, and any unresolved issues could result in denied claims and a tax return reassessment. That's why Ms. Ricchio says it's vital to keep your financial records organized and up to date.

She also recommends Canadians take advantage of TurboTax's Audit Defence, which is included with TurboTax Full Service. In case of an audit or a re-assessment, you'll be protected and get all the help you need.

If you believe there's been an error, you can file an objection within 90 days of your Notice of Assessment, which can be done online through CRA's Register My Formal Dispute option or by submitting Form T400A. If your objection is denied, you can still appeal to the Tax Court of Canada. Another option is to pay the amount owed upfront, so you avoid additional interest and penalties.

“Overall, when it comes to taxes, every dollar saved counts,” Ms. Ricchio says. “By taking advantage of these deductions and credits, you can keep more money in your business and reduce your tax burden. Many of these claims require proper documentation, so staying organized and consulting a tax professional can help maximize your returns.”

This article was originally published by The Globe and Mail in March 2025.