Working for yourself and going to Canada? You’re not the only one! Here is some information about freelancing, self-employment status, invoicing, getting paid, filing a tax return and more.
What kind of work permit do I need to work as a freelancer?
If you want to work for more than one Canadian company as a freelancer, you need an open work permit like a Working Holiday permit. Closed work permits only allow you to work for one specific employer. Confused? Learn more about open and closed work permits here.
Study permit holders may be able to work on and off campus, so freelancing is an option.
Permanent residents of Canada can also choose to be self-employed.
Can I work for an employer and freelance on the side?
Yes. As long as you have the right work permit, you can work for an employer and earn freelance income.
You will need to have an open work permit, though. Remember that for instance, Young Professionals work permits are closed work permits—you’re only allowed to work for a specific employer, the one listed on your work permit. Working for other companies or employers isn’t allowed, both as an employee or as a freelancer.
Can I freelance in any field and for any industry?
Some occupations are regulated in Canada, which means you must obtain a licence to practise or a certificate of qualification. Different provinces/territories have different rules in place and different regulatory bodies as well. If your occupation is regulated, contact the relevant bodies well in advance to go through the assessment and licensing process.
For more info, read the “Find out if your occupation is regulated or non-regulated” section in Finding a job and working in Canada.
Do I have to notify any Canadian organization when I start freelancing?
If you carry out your freelance activity exclusively under your name without any other business name (i.e. “Jane Smith” and not “Computer Solutions Smith”) you don’t need to register your business with the government.
Otherwise, you have to register your business as a corporation, a sole proprietorship or cooperation.
Do I have to open a separate business bank account in Canada?
Incorporated companies must have a dedicated business bank account, but it’s not mandatory for self-employed individuals. However, it may be a good idea to set up one for better accounting practices.
What do I need to put on my invoices?
This is what should be on your invoices: a mention of “Invoice,” the date, your contact information, your client’s contact information, the nature of the services provided and their amounts (excluding taxes + including taxes if you make more than the $30,000 threshold, as explained below).
Any rules regarding accounting practices?
You do have to report income and file taxes under Canadian tax laws, so you’d better track your income. You can use spreadsheets (for example, Excel), accounting software, or just a notebook!
I have clients “back home.” Do I have to invoice them in Canadian dollars or in their currency?
Canadian dollars, euro, pesos … whatever you want, there are no specific rules.
How can my clients abroad pay their invoice now that I’m a Canadian freelancer?
Your client can send payment to your home country bank account, or send an international bank transfer to your Canadian account. In either case, the income will have to be declared in Canada.
Do I need to charge taxes when invoicing foreign clients?
Many services provided in whole, or in part, in Canada are zero-rated when supplied to a non-resident.
Canada Revenue Agency states that “Generally, the GST/HST (i.e. Canadian tax) is not charged on services performed totally outside Canada, or on services that relate to real property outside Canada.”
Do fluctuating exchange rates affect my taxes?
When you file your Canadian tax return, your foreign currency income will be converted to Canadian dollars using the average rate for the income year.
Do I have to report all foreign income when filing my taxes in Canada?
It basically depends on your residency status for tax purposes. If you’re considered a resident in Canada for tax purposes, then yes, all foreign income must be reported in Canada, so start by determining your residency status as defined by the Canada Revenue Agency.
Working Holiday permit holders who live and have a bank account in Canada are generally considered Canadian residents for tax purposes. Work permit holders who stay in Canada for 183 or more days in the year may be considered a deemed resident of Canada.
What are my tax obligations if I make less than $30,000 a year as a freelancer?
If you’re below the $30,000 threshold, you simply have to report your revenue and file your taxes before the April 30 deadline the following year. The amount you have to pay will depend on revenue reported.
Most freelancers are “small suppliers” with a revenue of $30,000 or less, in which case you don’t have to register for Goods and Services Tax (GST) and
Harmonized Sales Tax (HST), collect it or remit it. Read the fine print though because some small suppliers are not exempt. For instance, a person who carries on a taxi business or provides commercial ride-sharing services must register for GST/HST even if the person is a small supplier.
If you’re indeed exempt from collecting GST/HST, your invoices should have the following note: “Small supplier not required to register for GST/HST.”
Note that small supplier refers to a person whose revenue from worldwide taxable supplies was equal to or less than $30,000 in a calendar quarter and over the last four consecutive calendar quarters. Track revenue carefully! If your revenue is over the threshold amount in one calendar quarter, you are considered a registrant and must collect GST/HST on the supply that made you go over the threshold amount. Your effective date of registration is the day of the supply that made you go over the threshold amount and you must register within 29 days of that day.
How do I collect GST/HST when my income is over $30,000?
When your income is more than $30,000 in a calendar quarter and over the last four consecutive calendar quarters, you have to register for GST/HST, then charge it and remit it on your taxable supplies of property and services.
Read Open or manage an account for step-by-step instructions from the Canada Revenue Agency.
The rate of tax to charge depends on the place of supply—find out which rate you should charge on your invoices, and add your tax number. Finally, you will have to remit GST/HST monthly, quarterly or annually depending on your situation.
For more information, read GST/HST for businesses.
Which tax rate do I charge?
The tax rate you charge depends on the place of supply. This is where you make your sale.
These are the 2022 rates:
- 5% (GST) in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon
- 13% (HST) in Ontario
- 15% (HST) in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island
You can also use the GST/HST calculator.
Note that the tax rate is based on where the client is located. If you’re in Ontario and your client is in Nova Scotia, a 15% tax rate applies.
Which form do I use when filing taxes?
You should use the T2125 Statement of Business or Professional Activities form for your federal tax, plus another form for provincial taxes.
How much should I set aside to pay for my taxes at the end of the year?
Many employees get a tax return because your employer takes a percentage off your gross pay and submits it to the government on your behalf. But when you’re self-employed, you become fully responsible for setting aside money to pay your income taxes and contribute to the Canada Pension Plan (CPP)—you will have a bill to pay at the end of the year.
Tax rates remain the same for both employees and self-employed individuals.
You will have to pay:
- Personal income tax on your business’ earnings (minus business expenses)
- Contributions to the Canada Pension Plan (CPP)
The biggest difference is the CPP premiums. Employees only pay half of your CPP premiums, employers pay the other half. Self-employed individuals pay the full amount.
It’s wise to hire an accountant to make sure you’re doing it right and benefiting from all deductions! Make sure to keep all receipts when buying business supplies.