Self-Employment and Small Business Tax Obligations

You must register once your worldwide taxable revenues exceed a small-supplier threshold, measured over rolling quarters rather than a calendar year. Cross it and registration is mandatory from a specific date, and you owe tax you should have collected whether or not you charged it.

Voluntary registration below the threshold is often worthwhile: it lets you claim input tax credits on business purchases. Weigh that against the compliance work. **Quebec businesses register for QST separately with Revenu Québec.**

Once your tax owing exceeds a threshold in a year, you must pay by instalments in following years rather than in one payment. Instalment interest is charged where payments are late or insufficient, and it compounds daily.

The practical habit that prevents this: set aside a fixed percentage of every payment received, in a separate account, from day one. Self-employed people who owe a large balance in April almost always failed to do that rather than failed to earn.

Expenses must be incurred to earn business income and be reasonable. Commonly claimable: home office on a reasonable square-footage or room basis, vehicle costs apportioned by a **contemporaneous mileage log**, professional fees, supplies, subscriptions, and a portion of meals and entertainment.

Not claimable: personal expenses dressed as business ones, and commuting. The areas most audited are vehicle, home office and meals — and the deciding factor is almost always whether records were kept as you went, not whether the expense was legitimate.

The CRA can determine that someone treated as a contractor was really an employee, looking at control over the work, ownership of tools, chance of profit and risk of loss, and integration into the business. The written agreement matters but does not decide it.

The consequences fall hardest on the **payer**: liability for unremitted payroll deductions plus penalties and interest, potentially for years. For the worker it can mean losing claimed deductions. If you rely on contractors, get the arrangements reviewed before an audit does it for you.

Incorporation can defer tax where profits are retained in the company, and the small business deduction reduces the rate on active business income up to a limit. It also creates limited liability, though a personal guarantee removes that in practice for most lenders.

It brings real costs: separate corporate returns, higher accounting fees, payroll or dividend mechanics, and rules on salary versus dividends and on passive investment income that reduce the benefit. Incorporating purely because it sounds more professional is usually a net cost until profits genuinely exceed what you draw.