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Canadian laws for freelancers
Thread poster: Sophia Finos
Sophia Finos
Local time: 16:57
Greek to English
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Sep 23, 2005

What are the Canadian laws regarding freelancers? How/when does one have to pay income tax, CPP, EI?

Also, when billing a client, do you charge them GST and PST? Are foreing countries required to pay Canadian taxes?

Any help would be greatly appreciated.
Thanks
Sophia


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xxxPRen  Identity Verified
Local time: 16:57
French to English
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Some required reading: Sep 23, 2005

Sophia Finos wrote:

What are the Canadian laws regarding freelancers? How/when does one have to pay income tax, CPP, EI?

Also, when billing a client, do you charge them GST and PST? Are foreing countries required to pay Canadian taxes?

Any help would be greatly appreciated.
Thanks
Sophia




Visit http://www.cra-arc.gc.ca/menu-e.html. As you can see from the subject headings listed there, you should be able to find everything you need to know. You can also call them and speak to an advisor. They're very helpful! You can also consult an accountant.

Paula


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NancyLynn
Canada
Local time: 16:57
Member (2002)
French to English
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MODERATOR
Short version: but Paula has the answer Sep 23, 2005

I'll just quickly answer your questions here, but Paula is absolutely right - become fully informed through the Internet (and your local HRDC office, where you can get hard copies of everything in both languages).

Sophia Finos wrote:
What are the Canadian laws regarding freelancers? How/when does one have to pay income tax, CPP, EI?


As a freelancer, you are self-employed. This means you have no employer payroll cheque with federal deductions automatically taken off.

CPP you contribute on your own if you wish; you do not contribute to EI. Of course, this also means you have no unemployment insurance - you're on your own, literally.

Income tax forms must be remitted no later than April 30, though self-employment taxes are not due until June 15. This gives the government time to review your income tax return and respond with a Notice of Assessment.

The income tax deduction from your pay slip, when you work for someone else, no longer exists; and if you don't make provisions for income tax payment the following year, you will be in for a nasty surprise.

The best way to deal with this is to open a savings account for this special purpose. For each payment you receive from a client, calculate what the percentage of tax should be (usually 30-35%) and deposit that amount into your account. This way, when you receive your notice of assessment and the total is in the several thousand, you'll be prepared.

Also, when billing a client, do you charge them GST and PST? Are foreing countries required to pay Canadian taxes?

GST in internal to Canada. You apply it to your invoices when your annual sales reach $30,000.

Hope this helps!

Nancy


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xxxPRen  Identity Verified
Local time: 16:57
French to English
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Another option Sep 24, 2005

NancyLynn wrote:



As a freelancer, you are self-employed. This means you have no employer payroll cheque with federal deductions automatically taken off.

CPP you contribute on your own if you wish; you do not contribute to EI. Of course, this also means you have no unemployment insurance - you're on your own, literally.

Income tax forms must be remitted no later than April 30, though self-employment taxes are not due until June 15. This gives the government time to review your income tax return and respond with a Notice of Assessment.

The income tax deduction from your pay slip, when you work for someone else, no longer exists; and if you don't make provisions for income tax payment the following year, you will be in for a nasty surprise.

The best way to deal with this is to open a savings account for this special purpose. For each payment you receive from a client, calculate what the percentage of tax should be (usually 30-35%) and deposit that amount into your account. This way, when you receive your notice of assessment and the total is in the several thousand, you'll be prepared.



Just an added clarification Nancy. After doing it strictly on a self-employed sole proprietorship basis, I found it much easier to incorporate and set up a payroll number. This means that I am an employee of the corporation, which pays me as an employee and remits tax and CPP monthly on my behalf, as would any employer. There is no need to set aside money for taxes to avoid those nasty year-end surprises. Also, the corporate tax rate is lower than the individual income tax rate.
Paula

[Edited at 2005-09-24 03:31]


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NancyLynn
Canada
Local time: 16:57
Member (2002)
French to English
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Thanks again Paula! Sep 26, 2005

A friend of mine had mentioned that incorporation is a good option but did not give me all the details. This does make sense!

Nancy


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