Being a sole proprietor or a self-employed professional often means all your business-related tasks, including bookkeeping, fall solely onto your shoulders. 

And take note: most self-employed professionals and sole proprietors must file a tax return for fiscal 2023 by or before June 15, 2024. 

However, if you owe the government money, you need to pay the taxes owed by April 30, 2024, or the CRA will start charging you compound daily interest as of May 1, 2024.

Tax filing tips for Canadian sole proprietors

What Is a Sole Proprietor?

It’s the simplest type of business structure. Sole proprietorships are owned by one individual and are not incorporated. 

It’s cheaper and easier to start a sole proprietorship than a corporation, but one downside is that you also assume all the risks, which extends to your assets. That includes filing (and paying) your taxes on time and making sure you have the right tools, knowledge, and liability insurance to protect yourself. 

Here are eight tax-filing tips to help:

 1. Understand What You Need to File

Even if as a sole proprietor you didn’t make much money, are operating at a loss, or are currently inactive, you still need to file your business and personal taxes together using a T2125 Statement of Business or Professional Activities form. 

You also need to file a T1 return, including if you:

  • Disposed of a capital property or had a taxable capital gain
  • Have to make Canada Pension Plan (CPP) payments on earnings
  • Want to access employment insurance (EI) special benefits
  • Received a demand from the government to file a return
  • Are claiming an income tax refund, a refundable tax credit, a GST/HST credit, or the Canada Child Benefit
  • Are entitled to receive provincial tax credits

It’s recommended to speak to an accountant or tax-filing advisor to ensure you file the correct type of return.

2. File Your Return on Time

Suppose you didn’t turn a profit in 2023. You still need to file your business tax return on time to avoid late-filing penalties and having to pay interest if you owe the government money.

If you do owe but don’t have the funds to pay the balance in full, the CRA does offer payment arrangements to make it easier.

3. Set Money Aside Throughout the Year

If you operate a sole proprietorship and also have a salaried position, you may be surprised by how much you owe at the end of the year. Especially if you are used to having taxes and CPP payments deducted from your paycheque automatically.

Being a sole proprietor means you are responsible for figuring out your taxes and other payments owed. If you wait until tax time and don’t set money aside over the year, you may find yourself owing a large sum of money you cannot easily pay. It’s helpful to also budget for RRSP contributions, as these can offset the taxes you will owe.

And finally, you are also required to register for a GST/HST number once your business makes $30,000 or more in 12 months, so you need to set aside those payments too.

 4. Be Prepared to Pay in Installments

According to the CRA, you have to pay in installments for 2023 if:

  • Your net tax owing for 2023 will be more than the threshold amount for your province or territory (which is anywhere from $1,800 to $3,000, depending on where you live)
  • Your net tax owing in either 2021 or 2022 was above the threshold for your province or territory

The CRA will send reminders when you need to pay income tax and GST/HST installments, but these are easy to miss, especially if they have an old address or email on file for you, so make sure you keep on top of it.

 5. Don’t Delay If You Owe Money

If you are not required to pay in installments, the deadline for payment is April 30, 2024. If you are required to pay in installments, the CRA has likely set installment deadlines to pay quarterly within the previous year. If you owe money and have still not paid your taxes by now, you are likely accruing interest on any balance owing.

If you don’t know exactly how much you owe, it’s better to estimate and send payment as soon as possible to minimize any interest charges. Estimate more than you think you owe. If you end up overpaying, you will get a refund once you file your taxes. If you need to adjust later, you can do so. 

 6. Keep Track of Payments and Business Expenses

You are in for a long night if you wait until tax time to start looking through that shoebox full of receipts. And it will be easy to miss a lot of things.

Consider having a separate bank account and credit card for your business. Being diligent about using these only for business expenses and deposits will help keep things straight when sorting them later.

Another tip is to list out your monthly expenses and payments so you will have a good sense of how much money you are making and spending (and will owe). Doing your taxes will be much easier, and with far less surprises.

7. Know What You Can Deduct

One of the greatest benefits of being self-employed is the number of things you can deduct or “write off” – especially if you work out of your home. “Business use of home” expenses mean you can claim a portion of:

  • Your mortgage or rent
  • Home repairs
  • Home utilities like heat, water, etc.
  • Phone, internet
  • Your home insurance and taxes

Other things you can claim as a sole proprietor include:

  • Motor vehicle expenses (keep a logbook for business mileage)
  • Business parking, transit, travel, hotel rooms
  • Food and entertainment (if business-related)
  • Product inventory, office supplies, and other tools
  • Marketing, professional memberships, websites
  • Business advisories such as accountants, lawyers, courses, coaches
  • Office space rental and utilities
  • Liability insurance

 8. Know When and Where to Get Help

If you need direction on which specific forms you’ll need to submit for your business, the CRA has a list of these here to help you out.

It can be challenging to run a business by yourself, so don’t be afraid to call in an expert such as an accountant or even a tax lawyer if you find yourself being audited, owing money, or needing advice. Doing so will often pay for itself if the direction can save you money. Plus, it is a business expense, so you can also deduct that expense from your taxes.

Protect Your Personal and Professional Assets: Get Liability Insurance

As a sole proprietor, all the business and personal risk rests with you, so having the proper insurance to protect yourself is critical.

Fill out an application for a free quote. Our friendly, knowledgeable brokers will find the low-cost coverage you need quickly and will customize it to suit your requirements.

— Updated January 12, 2024.
This document is provided for informational purposes only. It does not, and it is not intended to, provide legal, technical or other professional advice, nor does it amend, or otherwise affect, the provisions or coverages of any insurance policy or bond issued by any carrier that is procured by, or with the assistance of Zensurance, nor is it a representation that coverage does or does not exist for any particular claim or loss under any such policy or bond. Availability of coverage referenced in this document can depend on underwriting qualifications and relevant laws and regulations. Zensurance disclaims all warranties whatsoever.
In addition, the referencing of certain entities in this material does not imply that any sponsorship, affiliation or endorsement relationship exists as between Zensurance and such entities. The use of any services or the implementation of any product or practices referenced in this material is at your sole discretion. In no event will Zensurance or any of its subsidiaries or affiliates be liable in contract or in tort to anyone who has access to or uses this material for the accuracy or completeness of the information contained herein. This document is not designed to be comprehensive and it may not apply to your particular facts and circumstances. Consult as needed with your own legal advisor or other professional advisor regarding the sufficiency of any resources referenced herein.

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About the Author: Justin Tisdale

Justin Tisdale is a Team Lead, Professional Lines, at Zensurance.