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The Globe and Mail

Eight small-business tax questions ahead of June 17th deadline

H&R Block Canada provided these answers to common questions small business owners have at tax time

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Do I really need to fill out a T2125? Yes. Even if you are student with a summer job that paid you as a contractor, you should still report the income on a T2125 Form and claim reasonable business expenses. It may be tempting to enter the income on Line 104 - other employment income - but this is not correct.

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Can I pay myself a salary? No. Unless you are incorporated, you are required to report all the income you earned from your business during the calendar year. You can not carry forward income to future years.


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Do I need a business number? No. You do not need a business number to report business income on a T2125 Form. This form records your business income and expenses as part of your personal return. And if you earned more than $3,500, you need to pay CPP premiums.

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Can I have losses? Yes. You can have losses on your business that can be used to offset other income. If the losses exceed your income from other sources, you have a non-capital loss which can be carried forward to years when you have more income. The Canada Revenue Agency (CRA) will not expect your new business to make money right away but there should be a reasonable expectation of profit in future years.

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Do I need receipts? Yes. Even though you do not send your receipts with your tax return, keep really good records. Self-employed Canadians are more likely to be audited, so you need to keep your receipts and other documentation to support your business expenses. The expenses must have helped you earn your income.

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Can I use a flat rate for business mileage? No. If you use your car for business, you must keep a mileage logbook. There is a new simplified method for self-employed taxpayers but you must keep a logbook for a year before you can use it. If you don’t and claim business mileage, your claim may be reduced or disallowed.

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Do I have to make instalments? Yes, if you want to avoid interest charges. If you have tax owing in any two of the last three tax years, the CRA will request that you make quarterly instalments rather than an annual payment. Failing to make instalment payments could result in interest charges.

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Do I need a GST number? No. If your annual revenues are more than $30,000, you have to register for the GST/HST. But even if your revenues are less than this, it is usually advantageous to register so that you can claim input tax credits for the GST/HST you pay.


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