We specialize in incorporated contractors and freelancers across Canada and the USA.
Our services for contractors:
Who is a contractor?
A contractor is a self-employed professional who provides services to clients or businesses under a contract.
Unlike traditional employees, contractors manage their own taxes, expenses, and business activities. They are responsible for securing their own contracts, setting their rates, and handling taxes independently.
Who is an Incorporated Contractor?
You are an incorporated contractor, if you are doing contracting business under a corporation. In this case the corporation is referred to as contractor. It is a separate entity (from the contractor/ you) providing services.
The corporation will be responsible for the business, contracts, handling taxes and other obligations like payroll.
1. Incorrect Classification (Employee vs. Contractor)
Many contractors may unintentionally fall under the CRA’s “employee” classification due to factors like working primarily for one client, having set hours, or using the client’s tools. Misclassification can lead to issues with deducting expenses and paying correct taxes.
Consequence: Reclassification as an employee can result in back taxes owed, ineligible expense deductions, and penalties.
Solution: Review CRA guidelines on contractor status, ensuring contracts clarify independence. If uncertain, consult a tax professional.
2. Overlooking GST/HST Registration and Filing
Contractors earning over $30,000 annually must register for a GST/HST number. Many overlook this requirement, especially when just starting out or working with multiple clients.
Consequence: Failing to register or file GST/HST on time can result in interest, late fees, and CRA audits.
Solution: Track income closely, register for GST/HST when the threshold is reached, and set reminders for quarterly or annual filing deadlines. A bookkeeping app like Zoombooks can help manage these tasks effortlessly.
3. Improper Expense Deductions
Not all expenses are deductible. Common mistakes include claiming personal expenses or misunderstanding eligible business deductions, leading to inaccuracies in tax returns.
Consequence: Incorrect deductions can trigger audits, re-assessments, and penalties from the CRA.
Solution: Familiarize yourself with eligible deductions for contractors, such as home office expenses, equipment, and vehicle costs. Keep meticulous records and consider using expense tracking software to streamline this process.
4. Inadequate Tax Planning and Payment
Contractors often fail to set aside enough income for tax payments, leading to unexpected tax bills. With no automatic payroll deductions, it’s crucial to plan for tax payments ahead of time.
Consequence: Inadequate funds for tax payments can lead to interest on overdue amounts and potential penalties.
Solution: Aim to save at least 25-30% of income for taxes, including both income tax and GST/HST. Making quarterly installments can also help avoid a large tax bill at year-end.
5. Not Keeping Detailed Records
Many contractors overlook the importance of detailed bookkeeping, especially when juggling multiple clients. Poor record-keeping makes it hard to prove income and expenses in case of an audit.
Consequence: Disorganized records can lead to denied deductions, missed claims, and potential CRA scrutiny.
Solution: Use a dedicated bookkeeping tool, like Zoombooks, to track all income and expenses. This habit will ensure accurate tax filing and provide peace of mind if audited.
As tax experts for independent contractors, incorporated professionals, and freelancers in Canada, we deliver specialized tax and accounting services tailored for self-employed individuals and small business owners. Based in Toronto, we offer both online and in-office support to clients across Canada and the USA.
Leave us a message, you will hear back from us within 24 hours.
If you receive a CRA audit notice, respond promptly and gather all relevant receipts, invoices, and financial records. It’s best to consult professionals who offer CRA audit help for contractors to guide you through the process, represent you with the CRA, and minimize potential penalties or reassessments.
Yes. Contractors can deduct vehicle expenses, but only for business-related use. Maintain accurate mileage logs, fuel receipts, insurance, and maintenance records. An accountant specializing in contractor tax deductions can help calculate your mileage deduction for small business vehicles to ensure compliance with CRA rules.
Contractors operating through an incorporated business may qualify for the Small Business Deduction (SBD), which reduces the corporate tax rate on active business income. However, Personal Services Businesses (PSBs) are generally not eligible. An incorporation accountant for contractors in Canada can help determine if you qualify.
Independent contractors in Canada must file a T1 General tax return along with Form T2125 (Statement of Business or Professional Activities) to report business income and expenses. Working with an expert contractor tax accountant in Canada ensures these forms are completed accurately, helping you claim all eligible deductions and stay compliant with CRA guidelines.
To avoid being labeled as a PSB, ensure you work with multiple clients, have control over your schedule, and use your own tools or equipment. A corporate tax accountant for contractors can help structure your contracts and payroll properly to reduce PSB risk and maintain access to small business tax benefits.
Keep detailed records such as receipts, invoices, mileage logs, bank statements, and digital copies of expenses for at least six years. Using digital receipt management for small business and bookkeeping solutions for contractors helps simplify tracking and ensures your deductions hold up during a CRA review.
Yes, contractors who work primarily from home can deduct a portion of utilities, rent, internet, and office supplies. You must meet the CRA’s criteria for business use. An expert small business accountant can calculate your home office deduction for small business owners in Canada accurately to maximize savings.
Yes. If your total revenue exceeds $30,000 in a 12-month period, GST/HST registration is mandatory — even for part-time contractors. Professional GST/HST filing services for contractors ensure accurate collection, filing, and remittance to avoid CRA penalties.
All foreign income must be reported on your Canadian tax return. You may be eligible for foreign tax credits to prevent double taxation. A tax accountant for self-employed Canadians experienced in cross-border tax filing can help you manage reporting obligations efficiently.
Yes, contractors can deduct premiums for business-related insurance, such as liability, professional, or health insurance. These deductions lower your taxable income and form part of your overall tax planning strategies for small business owners in Canada.
If you miss your tax deadline, the CRA charges a 5% penalty on unpaid taxes plus 1% per month, up to a maximum of 12 months. Repeat offenders face higher penalties. Hiring a small business tax accountant helps ensure your returns are filed accurately and on time.
Incorporated contractors can pay themselves through salary, dividends, or a combination of both. Each option has different tax implications. A corporate tax accountant for contractors can help you develop a strategy that balances personal income, RRSP contributions, and corporate tax efficiency.
Yes, contractors can deduct up to 50% of eligible meals and entertainment expenses related to business activities such as client meetings or travel. Always keep detailed receipts and record the purpose of each expense for CRA compliance.
Both accounts offer advantages. RRSPs reduce taxable income and defer taxes until withdrawal, while TFSAs provide tax-free investment growth. A tax planning expert for contractors in Canada can help you choose the best strategy for your income level and long-term financial goals.
