Because freelancers are not Solar Staff's employees and we don't pay taxes on their payouts, they must declare any income received via Solar Staff by themselves.
To carry on tax accounting in Canada for your Solar Staff income, you need to:
Canada taxes its residents on their worldwide income, while non-residents are taxed on Canadian-source earnings only (in particular, income from carrying on a business in Canada and capital gains from the disposition of taxable Canadian property). Individuals resident in Canada for only part of a year are taxable in Canada on worldwide income only for the period during which they were resident.
An individual is resident in Canada for tax purposes if there is a continuing relationship between them and Canada, which may take the following forms:
Stay/sojourn in Canada for 183 days or more in a calendar year.
Personal and economic ties in Canada, as well as social and business ties (a dwelling place available for the individual's occupation and the residence of the individual's spouse and dependants, personal property, memberships in clubs and religious organisations, driver's licences, vehicle registration, and so on).
Working Holiday permit holders who live and have a bank account in Canada are generally considered Canadian residents for tax purposes.
In Canada, resident individuals with tax obligations are required to have a nine-digit Social Insurance Number (SIN) as their tax ID. This number is not assigned automatically: you need to apply for it either online or in person / by mail.
To carry out independent activities or conduct business, you need to obtain a nine-digit Business Number (BN). BN serves to identify legal entities and sole proprietors when they interact with federal, provincial, and municipal governments in Canada.
If the above do not apply for the taxpayer, they do not need a business number. Additionally, sole proprietors with an annual income of less than 30,000 Canadian dollars (CAD, $) are considered small suppliers and can work without a BN.
Taxes and contributions payable by freelancers
If you receive income via Solar Staff, in Canada you may do so by setting up a sole proprietorship.
Independent contractors can set up as a sole proprietor or a self-employed individual, which would allow them to carry on an unincorporated business that is owned by one individual. According to the CRA, income from any activity carried out for profit constitutes business income. Important considerations:
In some cases, sole proprietors operating under their own name are not required to register. Otherwise, registering a sole proprietorship is done at an office of the provincial or territorial government (learn more).
The owner of a sole proprietorship is responsible for debt and other liabilities with their personal property and assets, and does not have separate legal status from the business.
Sole proprietors cannot issue any kind of shares, meaning they are fully responsible for the entirety of their profits.
Sole proprietors may require permits and licenses from federal, provincial/territorial, and municipal authorities (learn more).
Taxes may vary from region to region, and some provinces and territories may also levy additional local taxes/fees. Read on for more details.
Federal income tax, which is calculated at a progressive rate:
Federal taxable income, CAD
Tax on excess, %
up to 53,359
235,675 and above
In addition to federal income tax, individuals who reside in, or have earned income in, any province or territory are subject to provincial or territorial income tax.
Tax returns and payment. In this status, personal income and income from entrepreneurial activities are combined, so you need to use the T1 income tax package. For income from business or professional activities, you need to fill out Form T2125, Statement of Business or Professional Activities (filling instructions), and for provincial and territorial income taxes, Form 428 or Form T2203, Provincial and Territorial Taxes for Multiple Jurisdictions. The deadline for filing and paying the tax is April 30 of the year following the reporting one. Please note that if your net tax owing is more than $3,000, or $1,800 for Quebec, you need to make the payments quarterly on March 15, June 15, September 15, and December 15.
Accounting requirements. Sole proprietors do not need to prepare public financial statements, but they should use a basic accounting tool (or at least an Excel spreadsheet) to record transactions and expenses. This will also make it easier to fill out Form T2125.
Sole proprietors do not have to open a separate corporate bank account, but it could be a good way to simplify the accounting of income and expenses.
Important! In Canada, there is alternative minimum tax (AMT), which limits the tax advantage you can receive in a year from certain incentives. Your tax software will show both regular income tax and AMT. If the income tax for the previous year is lower than AMT, the taxpayer has to pay AMT.
The difference in the amounts of AMT and regular federal income tax is treated as a temporarily refundable tax: taxpayers required to pay the AMT are entitled to a credit in the following 7 years, when their regular tax liability exceeds their AMT level for that year.
For reporting, complete Form T691, Alternative Minimum Tax. You may also have to complete Form 428 or Form T2203, Provincial and Territorial Taxes for Multiple Jurisdictions to calculate additional provincial or territorial tax.
Social security contributions are payable if business income exceeds $3,500 (depends on the territory: Quebec has separate rates). Tha payments are as follows:
Beginning January 1, 2024, taxpayers must pay the second additional CPP contributions (CPP2) on earnings above the annual maximum pensionable earnings but below the second earnings ceiling.
Self-employed persons in Quebec must contribute up to CAD 798.98 to the Quebec parental insurance plan.
Half of the base contribution (9.9%/2 = 4.95%) and the entire enhanced portion (2%) are deductible.
The contributions are filed and paid within the same deadline as the T1 return, with the relevant calculations done in Schedule 8, Canada Pension Plan Contributions and Overpayment: the CPP contributions are split into the base portion (9.9%, line 30800) and the enhancement (2%, line 22215).
The Goods and Services Tax (GST) and the Harmonized Sales Tax (HST) are analogous to VAT and are payable if the taxpayer's revenues during four quarters exceed $30,000 (learn more about when to register for and start charging the GST/HST). The rate depends on the territory:
5% (GST) in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon
13% (HST) in Ontario
15% (HST) in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island.
GST is levied on the supply of most property and services made in Canada. In New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island, GST has been combined with a provincial component and is called Harmonized Sales Tax (HST). HST is distributed between the federal budget and the budgets of the provinces and territories.
The taxpayers must have a BN and a GST/HST program account. You can register for a business number or a program account using Business Registration Online (BRO) or other means. Learn more about registering for a GST/HST account.
Taxpayers need to file and pay GST/HST monthly, quarterly, or annually. In some cases, the tax needs to be paid by instalments (learn more). The return forms (GST34-2 or GST62) are filed online or on paper (in the case of the latter, you will need to have the form sent to you). To help you prepare your GST/HST return, use the GST/HST Return Working Copy. In certain cases, the CRA may send you a special notice after you file everything.
Useful links: GST/HST calculator; more info about filing methods and common mistakes.
Many services provided in whole, or in part, in Canada are zero-rated when supplied to a non-resident (learn more).
When filing taxes, convert your FX income into CAD at the average exchange rate for the year of income.
If you have any questions, get in touch via the chat in your Solar Staff account or email us at [email protected].