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Leanne’s Tax Notes for designers in Toronto

• Updated Mar 10, 20257 min read

Important

These notes are relevant to you if you are 👩🏻‍💼 a sole proprietor 🎨 a creative professional (digital design, software, graphic design, or adjacent medium) 📍living in Toronto, Canada

I’m obviously not a professional, but this is my own homework that could be used as a guide. I still recommend finding an accountant/financial advisor to make it easier, I just want to know what I’m getting into.All of this information is available on the CRA website.

TLDR;

  • Fill out T2125 Statement of Business or Professional Activities when you file your personal taxes.

  • Give the government the T1 tax return form (which is what you usually fill out when filing your taxes)

  • Filling out GST/HST returns is separate from filling out your tax returns. This is done at the end of your reporting period (by default, annually).

Forms needed for tax return

Information needed for T2125

  • Business name, if you have one
  • GST/HST number, if you have one (you probably should) @
  • What kind of income you earned (Business vs Professional Income — as a designer, I selected business income)
  • Business address, if you have one
  • Whether it’s a partnership (likely not because it looks specific to fishing and farming)
  • Fiscal period (the day your business starts its business year and the day it ends its business year. Can’t be longer than 12 months, but could be shorter than 12 months, such as when a new business starts or when a business stops)
    • I think generally you have to use a December 31 year-end (so fiscal year Jan 1-Dec 31) so it doesn’t mess calculating the income you need to report for your tax return.
  • Industry code (As a designer doing web, illustration, and software design, I figured 541490 - Other specialized design services works best for me. You can determine your industry code on the North American Industry Classification System (NAICS) website)

Numbers asked

  • Gross professional fees, including work in progress ($)
  • Work in progress at year-end (included in gross fees) ($)
  • Returns, allowances, and discounts ($)
  • Work-in-progress start of year, per election to exclude WIP (I don’t actually know what this means)
  • Temporary wage subsidy received ($)
  • Any other business income ($)

What to expense

Important

See Expense Categories for Self-Imployed Businesses in Toronto for a searchable list of expenses and their categories

These are based on what Wealthsimple, and CRA, has outlined

  • Advertising
  • Meals and entertainment
  • Bad debts
  • Insurance
  • Interest
  • Business tax, fees, licenses, dues, memberships, subscriptions
  • Office Expenses
  • Supplies
  • Legal, accounting, and other professional fees
  • Management and administration fees
  • Rent
  • Maintenance and repairs
  • Salaries, wages, benefits
  • Property taxes
  • Travel
  • Telephone and utilities
  • Fuel costs (except motor vehicles)
  • Delivery, freight, express
  • Motor vehicle expenses, not including CCA
  • Capital cost allowance
  • Other expenses (with description)
  • It’s also possible to deduct expenses for a workspace in your home as long as it’s your principal place of business or you only use it to earn income and you use it to meet your clients.
    • Total area/Number of rooms in the home + workspace
    • Percentage that you use it for business purposes (calculated as , as in number of hours worked multiplied by days worked)
    • Heat
    • Electricity
    • Insurance
    • Maintenance
    • Mortgage interest
    • Property taxes
    • Other expenses (including rent)
    • Capital cost allowance
    • Carryforward from previous year
  • Internet business activities (number of websites you earn income from, and the percentage of your gross income generated from these websites)

Housekeeping

  • Keep records (an account, agreement, book, chart or table, diagram, form, image, invoice, letter, map, memorandum, plan, return, statement, telegram, voucher or any other proof of containing information in writing or any other form) of all your transactions so you can support your income and expense claims.
  • Keep a record of your daily income and expenses.
  • Keep your duplicate deposit slips, bank statements, cancelled checks.
  • If you have multiple businesses, keep the records separate.
  • If you’re computerizing records, make sure they’re clear and easy to read.
  • You don’t need to send records with your income tax return. This is only in the event of an audit.
  • Receipts have to show

    • Date of purchase

    • Name and address of seller/supplier

    • Name and address of buyer

    • Full description of goods or services

    • Vendor’s business number if they’re a GST/HST registrant when then purchase is more than $30 before tax

Internet business activities

Internet business activities includes

  • Income from your websites by selling goods or services on your own website (you have a shopping cart, process payment transactions) (so Shopify)
  • You fulfill orders by phone/email (a website as a landing page, then they contact you)
  • through an auction, marketplace, or other sites operated by others (Etsy, maybe Facebook Marketplace)
  • Paid ads on your site, affiliate programs, advertising programs, traffic programs

As long as they generate income, it counts.

Quick Method

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Example of using the quick method

FAQ

Do I have to register for a GST/HST number?

You don’t need a GST/HST number if your gross revenue is equal to or less than $30,000.

You might consider getting one if:

  • You’re going to be making more than $30,000 in a year
  • You’re making taxable supplies in your business

More details on CRA’s website

How do you pick your industry code?

Choose the industry code that best describes your activity — if it’s 50% of your business, then that’s your activity.

What’s the difference between professional income and business income?

The key difference is that businesses have inventory, commissions, fees and sales, and professionals have work-in-progress, charge fees, and are governed by a licensing body (like dentists, doctors, engineers, lawyers).

What if I have US clients?

You can’t charge them HST because HST doesn’t exist outside of Canada. You just charge the subtotal. Taxes will be handled on the client side because you’re not American.

That said, the CRA isn’t gunna know the difference. You’ll claim your income, and CRA will auto-math it to assume that you owe a certain amount of money. You’ll likely get a call from the CRA, and you’re just gunna have to send them documentation (assuming that you’re keeping really good track of your finances) to prove that you made the money and didn’t charge taxes because some of your clients weren’t from Canada. You’ll be fine — you know more about your business than they do, all of it is automated and not personal.

What this looks like when filing your GST/HST return

  • File your GST/HST return as per usual
  • Where it states Select the following if they apply, select `I want to report I want to report one or more of the following types of sales on my return > Exempt supplies, zero-rated exports, goodwill, financial services, sales of capital real property, and supplies made outside of Canada
    • Why? When providing digital services to US clients, these are generally considered “zero-rated” supplies for GST/HST purposes.
    • Zero-rated means you don’t charge GST/HST, but you can still claim Input Tax Credits (ITCs) for any GST/HST you paid on business expenses
    • You must still report the income (in CAD) on both your GST/HST return and income tax return
    • By selecting Exempt supplies, zero-rated exports... you are including line 105, which indicates zero-rated supplies
    • This way, you’re properly declaring all income while maintaining compliance with both CRA income tax and GST/HST requirements. The key is consistency in your exchange rate calculations and thorough documentation
  • Note: even though it says 90 - Taxable sales (including zero-rated supplies) made in Canada, this does not include the US client work amount.

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