by Sheila Henn CPA, CA | Paterson Henn CPA –
Do you have a side business or profits from a business or hobby that should be reported on your tax return? What about online sales, or sales from the craft fair? Your business may be growing and has a profit which is great news! Unfortunately, there isn’t a threshold for reporting profits on your tax return, but there are reasons beyond the income tax rules to claim this self-employment income (T2125). Having this history and reporting legitimizes the business as proof of income for various reasons such as obtaining loans.
The expenses to offset reporting these sales will help in reducing tax and the Canada Pension Plan (CPP) that you pay. Office expenses, supplies, vehicle, travel expenses – these are just some examples but basically any reasonable costs incurred to earn revenue can be claimed. Invoices and proof of payment support this claim; vehicle logs and other support may be needed.
This additional tax and cost of CPP (employer portion) often comes as a surprise. This, along with sales taxes that you may be withholding, should be kept aside for payment. Taxes are due April 30, although with self-employment income you can file by June 15.
If you are running a business, regardless of size, you should keep track of your sales and costs. It doesn’t have to be fancy, but you should be maintaining proper records and at the end of the day, knowing what you are earning will help with reporting and your business choices. This helps so you can set aside the appropriate amount of tax and see if you have a profit or loss.
It could be that you are just doing these craft fairs for enjoyment. A loss can be used against other income or be carried forward to offset profits in the future. The caveat is that it should not be claimed year after year, as CRA expects there to be a profit when you are operating a business.
The other compliance areas can be daunting – PST, GST and their requirements can be complicated especially when selling online outside of B.C. There is a lot of information online, but accountants can assist to ensure there are no surprises later. At the end of the day, most want to focus their efforts on what they enjoy – selling their goods or services.
For more information, visit www.patersonhenn.com.
