What You Do (and Don’t) Have to Report as Income
Hello All,
One of my ongoing challenges is defining what it means to be a small business owner.
From a tax perspective, whether you’re a self-employed gig worker, freelancer, independent contractor, or solopreneur, you are essentially seen as a small business. What this effectively means is, if you’re unincorporated, you’ll report your business income and expenses on the T2125 form (statement of business activities) as part of your personal tax return. If incorporated, you’ll file a T2 corporate return.
In addition to small business income, the question arises, what other types of income do you have to report and what is non taxable?
Income You Do Have to Report:
These are all considered taxable and must be included on your return:
Self-employment/small business business income - essentially any income that you earn for which you do not receive a T4.
Employment income and tips — reported on a T4 if you’re employed.
Barter income — even if you exchanged services or goods with no cash involved (though I suspect much of this goes unreported).
Rental income — including short-term or informal rentals like Airbnb. (There are special rules and a separate schedule for this.)
Investment income — such as interest, dividends, or capital gains earned on regular, non-registered investments, property or other assets.
Foreign income — Canadians are taxed on worldwide income. If you earned interest, dividends, business or property income from foreign sources, it must be reported.
Retirement income - including CPP/QPP, OAS, private pensions etc.
Other income - you also might have to report government benefits (you will receive a tax slip), scholarship income, EI benefits etc.
Income You Don’t Need to Report
There are some situations where you receive money, but it isn’t considered taxable income:
Gifts — as long as they’re not tied to work performed. (The rules are different and more complex in the U.S.)
Inheritances — these are taxed in the estate before you receive them.
Lottery or gambling winnings — unless you gamble professionally or frequently enough that it’s considered a business.
Personal loans or transfers between accounts — not considered income.
Sale of personal-use property — such as selling used personal items occasionally, but not as a business (e.g. on Facebook Marketplace or Kijiji).
GST/HST or QST collected — you’re collecting this on behalf of the CRA or Revenu Québec. It must be reported and remitted, but it’s not counted as income.
TFSA earnings — interest, dividends, and capital gains earned in a TFSA are tax-free for life.
RRSP income — not taxable until withdrawn in retirement. The income earned inside your RRSP is sheltered.
Canada Child Benefit (CCB), GST/HST credits and other tax credits/refunds and life insurance payouts (typically)
If you’re unsure whether a type of income needs to be reported, it’s worth taking a few minutes to find out—often a quick internet search will be sufficient. While many forms of income will come with a tax slip or official document, it is important to note that not all do. That means it’s up to you to make sure you’re reporting correctly.
Not reporting taxable income can lead to substantial penalties.
Conversely, reporting income you don’t need to could mean paying more tax than necessary.
As always, I'd love to hear your thoughts. You can simply reply to this email.
Have a great weekend!
Ronika
Tax Filing webinar
The Small Business Guide to Filing Your T1 Tax Return
If you’re a sole proprietor or unincorporated small business owner (whether or not you’re registered), you’re required to report your business income on your T1 personal tax return. The form you’ll need to complete is the T2125 — and it can be a bit challenging to understand and complete.
My on-demand masterclass Small Business Guide to Filing Your T1 and T2125 Tax Return walks you through what you need to know—from business income and expenses to avoiding common errors. Perfect for Canadian sole proprietors and freelancers.
And it's tax deductible :)
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Article: Guidance on preparing your T2125 form
Video: 5 Things To Know Before Filing Your Self-Employed Taxes
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Video Playlist: Help with your Small Business/Self Employed Taxes
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