Being an independent contractor in Canada may require you to pay different income taxes than you will need to pay anywhere else. That is why it is significant to understand how much tax you need to pay and how you have to do it in the first place. So, you have to correctly estimate your income tax and understand how you can come up with an accurate result.
Today, we will help you understand how you can pay the subcontractor tax in Canada without a hassling experience. This will enable you to engage in a safe, convenient, and flexible income tax-paying experience like never before. Also, take a moment to visit https://www.gobridgit.com/subcontractors for more information on subcontractors.
Who Is A SubContractor?
Subcontractors are general contractors who are primarily self-employed. These self-employed people may be independent and have flexible working hours depending on their contract. So, they may pick up work accordingly. They may also be known as prime or the main contractor in the construction world.
They perform general tasks and take care of comprehensive services at once, including building creation. Domestic, nominated, and named subcontractors are the different types of subcontractors to look out for. All of them provide additional services, so you may want to opt for them carefully. They also have other tax laws in different states, including Canada. So, you may want to take a look at that before you move ahead.
Tax Advantages For Subcontractors In Canada
Those subcontractors who are self-employed may enjoy a host of tax benefits in Canada. When you earn a good income, filing your Canada Revenue Agency tax is as easy as it gets. Your income tax will be deducted from the paycheck by the employer, and you will receive a T4 for the taxes. Since you are a self-employed person, you can keep track of your taxes as per the likes.
For starters, you can claim business expenses that will help reduce your taxable income. These may be included in it:
- Poor debts
- Household expenses
- Vehicle expenses
- Accounting, bookkeeping, and tax preparation charges
- Business ads
- Meals and entertainment
- Supplies and tools
- Union dues and membership charges
Generally, subcontractors who work remotely can deduct some costs relating to their work. For example; If your remote office consumes nearly 10% of your space, you can retrieve almost 10% of the maintenance cost of your home. The cleaning equipment, home insurance, and other utilities are added to it. Depreciation taxes on a few fixed assets can also be taken into account.
Now, you must make sure that you submit an annual tax return that comes with the gross expenses, net income, and other incomes. Keep in mind that you present only accurate records of such data as any inaccuracy can cost you your tax benefit exponentially. Therefore, keeping those records safe for at least six years is a safe target.
Estimate The Cost To Keep Aside For Your Income Tax
By calculating your income and tax bracket, you can easily estimate the cost during your initial years.
- If you earn nearly $400 every week for the entire year, then your income before tax would round up to $20,800- this is the lowest income it could be.
- If you are someone who makes nearly $800per week for the entire year, then your income before tax would round up to $41,600- this is the highest it could go to be.
If both these estimates are still within the 15% tax bracket, then you may want to set aside nearly $3,120. However, it may also be wise to set aside almost $6,240. This will help you to cover the tax bill adequately.
The estimate has not considered the territorial and provincial taxes, so you may have to look into that. This varies in each province. So, you have to generate knowledge on that before you come up with an accurate tax. Remember that we have only tried to create a dummy structure for your taxes. So, you may have to do precise calculations to develop the accurate one for yourself.
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What Happens In The Subsequent Tax Years?
Once your first tax return is over, you will be expected to pay in installments. This should happen every quarter. You will be sent accurate notes by CRA each quarter to help you analyze how much tax you need to pay. But you have to keep in mind that these are only estimates.
If your income increases exponentially during this time, but you are still paying the same taxes, you may end up with a massive tax bill file to your annual return. So, it is best to improve your quarter installments by calculating your annual tax bill correctly. On the contrary, if you see that your business income has reduced significantly, the quarter payment can be declined as well. If you do not do that, your payment will be returned to you during the tax time.
Canada Pension Plan (CPP) Payments
Now, your income tax is not the only thing you are expected to contribute to. You also have to do it for the Canada pension plan (CPP). If you realize that your income is more than $3,500 annually, your CPP contributions have to be 10.9%. If you are making quarterly installment payments, then you have to try and exceed the CPP contribution. It will be based on your annual income.
You have to be careful while calculating your income tax in Canada. Also, remember that every province has a different set of rules and regulations regarding the same, so you must be vigilant about that. Also, keep in mind that your taxes are accurate, as anything can instantly create complications for you. So, once you have paid the income tax in Canada, it will be hard for you to retrieve and make the correct payment. So, rest is good to go.