Did you work alongside yourself in 2021? Here’s what that will mean for your 2022 tax return
In case you haven’t noticed, the gig economy is in full swing. In fact, according to a survey, if you put ten Canadians in a room and asked who had a sideline, about six would raise their hands. This is a step up from 2019, when one in six Canadians participated in the odd-job economy.
As good as secondary activities are, they have one downside: doing your own taxes. As a freelance writer, self-employed person, or weekend grocery deliverer, you will have to pay taxes to the CRA. If you’ve been in the odd job economy this year, here’s what to expect on your 2022 tax return.
What taxes do you have to pay?
Whether you are self-employed or earning income on the other hand, you will be responsible for two different taxes:
- Personal income tax (self-employment tax)
- Canada Pension Plan (CPP) contributions
In addition to this, you can also contribute to the Employment Insurance program, which is not compulsory but offers you special benefits, such as maternity leave or leave to take care of a family member. sick. To get EI benefits, you contribute $ 1.58 for every $ 100 you earn, up to a maximum of $ 952.72 for 2022.
How do you calculate your self-employment taxes?
To calculate how much self-employment taxes you owe for 2021, you will need to know two numbers: (1) the self-employment income you have generated and (2) your business expenses (if applicable).
Once you know those two numbers, you subtract your expenses from your income to get your taxable income. For example, if you earned $ 100,000, but spent $ 15,000 on qualifying business expenses, your taxable income would be $ 85,000.
Once you know your taxable income, you can use an income tax calculator, like Wealthsimple’s version, to calculate how much tax you owe. For the example above, you should $ 11,518 in federal taxes (provincial taxes will vary).
What about CPP contributions?
To calculate your CCP contributions, you will start with your total business income and then subtract your business expenses. Then, subtract $ 3,500 from that number (the basic exemption amount). Finally, take 10.9% of what’s left and voila – you’ve calculated your CPP contributions.
Of course, that’s not all. There is an annual limit on your CPP contributions, a maximum amount you can contribute. For 2022, this limit will be $ 6,999.60. This means that if the calculation of your CPP contributions exceeds this amount, you only have to pay $ 6,999.60.
The tax deadline for ancillary income
Now let’s talk about deadlines.
The deadline for self-employment declarations in 2022 will be June 15 at midnight. This is for your tax return. If you expect to owe taxes, you must pay what you owe by May 2, 2022.
Should you register for a GST / HST number?
You only need to register for a GST / HST number if your income exceeds the small supplier threshold of $ 30,000 over four consecutive calendar quarters. As long as your side gigs generate less than $ 30,000 per quarter, you don’t have to worry about getting a GST / HST number.
The only exception to this rule is for carpooling drivers. If you are driving for Lyft, Uber, or any other ridesharing company, you will need to register immediately for a GST / HST number.
Remember that you must register voluntarily for the GST / HST number. If you don’t, you could get slapped with hefty penalties.
Already fed up with taxes? Work with a tax expert
If you are already fed up with self-employment taxes, this could be a sign that you need to work with a tax professional. This is especially true if you earn income from an employer in addition to earning money from a side business, as your taxes can be more complicated than you think.