DAVID WILKENFELD, CPA, CA, canadian tax CONSULTANT

Posts Tagged ‘Self-employed’

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What’s Your Tax Issue? Quebec Business Income

In Canadian Income Tax, Personal Tax on April 2, 2012 at 8:21 pm

The Tax Issue

I live in Ontario. I have $130K  of self employment income earned in Ontario and $12K  of  self employment income earned in Quebec. Do I have to file a Quebec return? Will I have any balance of taxes owing given the amount I earned in Quebec?

The Answer

Every self-employed person resident in Canada may have to perform an allocation of income if their income is earned through a permanent establishment (“PE”) in a different province. If you don’t have a PE in another province through which you earn your business income, then no allocation is necessary.

A PE is defined as a “fixed place of business”, and includes an office, a branch, a mine, an oil well, a farm, a timberland, a factory, a workshop or a warehouse. You will also have a PE if:

(a) You have an employee or agent established in the province if he has the general authority to contract on your behalf or if he has a stock of merchandise from which he regularly fills orders; or

(b) You have made use of substantial machinery or equipment in the province at any time during the year.

If you have a PE in another province, you must make an allocation of your income among the provinces in which you do business. There is a specific formula you must use to make the allocation, which is done on form T2203. The allocation you make will affect your provincial tax payable.

And yes, if you have PE in Quebec, which has its own tax return, then you must file a Quebec tax return. Report the full amount of your income on the Quebec return. Then the provincial allocation is made and the Quebec tax payable is apportioned based on the allocation.

So, to answer your question, if you have a PE in Quebec, you will have a Quebec tax return to prepare and you will likely have some Quebec tax to pay, based on the formula.

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Employment Insurance for the Self-Employed

In Canadian Income Tax on February 2, 2012 at 4:47 pm

Did you know that self-employed individuals can now apply for Employment Insurance?

Changes in the Employment Insurance Act recently enacted have made it possible for self-employed taxpayers to opt in to the EI program. Since January 1, ,2010, if you are a Canadian citizen or a permanent resident you can register with the EI program and pay premiums. In order to qualify for benefits you must earn a minimum of $6,222 per year.

The premiums are identical to those paid by employees. For 2012 they are equal to 1.83 percent of your self-employed earnings (1.47 percent in Quebec). The maximum annual premium is $839.97 ($674.73 for Quebec), based on maximum annual earnings of $45,900.

Self-employed individuals are not required to pay any employer portion of EI premiums, and the amounts paid are eligible for a non-refundable tax credit.

If you opt in to the program you would be eligible for maximum benefits of 15 weeks for maternity leave, 35 weeks of parental/adoptive  benefits, 15 weeks of sickness leave and 6 weeks of compassionate care benefits.

You must be registered and paying premiums for at least one year prior to making any claim for benefits. In order to qualify for benefits you must have an “interruption of earnings” which is defined as a more than 40 percent reduction in the time devoted to your business activities as a result of pregnancy, illness, injury, quarantine, the need to care for certain children or the need to provide care or support to certain family members. The 40 percent reduction is based on your “normal level” of time devoted to your business.

You would be entitled to benefits of up to 55 percent of your average weekly earnings to a maximum for 2012 of $485 per week.

If you register, you can decide to opt out at any time in the future, provided you have never made a claim for benefits. Otherwise, you must remain in the program for as long as you remain self-employed.

In Quebec, self-employed taxpayers are automatically required to participate in the Quebec Parental Insurance Plan (QPIP) which provides additional benefits to self-employed persons who sustain an interruption of earnings due to maternity leave, paternity leave, parental leave or adoption leave.