A self-employed person is an independent contractor who works on a fee or freelance basis, but is not an employee or employed by a company. Many sectors of the economy rely on self-employed workers, including construction, real estate, accounting and many web-related services.
The recent economic crisis has led to a significant growth in the number of self-employed people in Canada. According to Statistics Canada, “between October 2008 and October 2009, self-employment rose by 3.9%”, while salaried employment fell significantly.
Being self-employed infers several tax advantages. However, it is important to ensure that your situation qualifies for self-employed status according to defining criteria. In general, you are considered to be self-employed if you are free to choose how you will execute a contract and that you are not a subordinate of your client.
According to Revenue Quebec, there are six criteria for determining self-employment status. For example, you may be deemed self-employed if you own your own tools, if the tasks you perform are not part of the regular activities of the business you are working for and if your business relationship is that of a supplier to a client.
If you do business in your own name (first and last name), you are generally not required to register your business. However, if you want to use another company, you must register your business with the Registraire des entreprises.
The legal term that engulfs self-employment is “sole proprietorship”, which is the most simple and inexpensive form of business to develop and operate. Unlike a corporation, the requirements of a sole proprietorship are minimal.
Legally speaking, an individual enterprise and a self-employed person are one and the same. Revenue generated is considered to be the personal income of the self-employed person, who is subsequently entitled to certain tax credits and deductions for operating expenses.
As a freelancer, you are obliged to apply for case numbers for both the Goods and Services Tax (GST) and the Quebec Sales Tax (QST), provided that your income exceeds $30,000 annually.
Depending on the amount of your income, you may also have to make installment payments towards your taxes.
Given that self-employed persons have no employer, all contributions to the Régie des rentes du Québec (RRQ) must be paid directly.
Ultimately, self-employed workers are also responsible for their own retirement savings and for purchasing liability insurance, if necessary.
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