The benefits of being self-employed or owning a small business are plenty. You are your own boss, you can make your own hours and at end of the day – you make all the decisions. However, if it is just you, the task of managing everything on your own can be daunting. Thankfully, there is a bit of relief for small business owners when it comes to tax time. Cleo Hamel, senior tax analyst at H&R Block Canada, provides answers to some of the most common questions Canadian small business owners have to make tax time easier:

Q: Do I need a business number?

A: You do not need a business number to report business income on a T2125 Form. This form records your business income and expenses as part of your personal return. You will use your net income from this form to help calculate your Canada Pension Plan (CPP) premiums. If you earned more than $3,500, you will have to pay the employer and employee portions of CPP.

Q: Can I have losses?

A: You can have losses on your business that can be used to offset other income. If the losses exceed your income from other sources, you have a non-capital loss which can be carried forward to years when you have more income.

Q: Do I need receipts?

A: Yes, you need to keep really good records. Self-employed Canadians are more likely to be reviewed by the Canada Revenue Agency, so keep all your receipts and other documentation to support your business expenses. You can only claim expenses incurred to help you earn your income.

Q: Do I really need to fill out a T2125?

A: Even if you are student with a summer job that paid you as a contractor, you should still report the income on a T2125 Form and claim reasonable business expenses. If you decide to enter your income on Line 104 as other employment income, you cannot deduct expenses to help reduce your tax payable.

Q: Can I use a flat rate for business mileage?

A: If you use your car for business, you must keep a mileage logbook. There is a new simplified method for self-employed taxpayers but you are required to keep a logbook for a year before you can use it. If you do not have a logbook and claim business mileage, your claim may be reduced or disallowed.

Q: Do I have to make installments?

A: If you have tax owing in any two of the last three tax years, the Canada Revenue Agency will request that you make quarterly installments rather than an annual payment. Failing to make installment payments could result in interest charges.

Q: Do I need a GST number?

A: If your annual sales are more than $30,000, you have to register for the GST/HST. However, even if your sales are less than this, it is usually advantageous to register so that you can claim input tax credits for the GST/HST you pay.

Depending on the size of your business and your level of comfort with numbers and budgets, you may be one of the many Canadians who prefer to do their own taxes. If so, use a reliable tax preparation software such H&R Block At Home ( which guides Canadians through step-by-step tips to identify every possible deduction or credit, calculates your return as you go, and ensures you get your maximum refund. If you would prefer to have someone else take care of it all for you, bring it into an H&R Block office and a tax professional will do a Second Look review for free.

-Information provided by H&R Block


  1. Great tips, thanks!

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