I have seen many construction workers become so far behind in their personal taxes and GST remittances because they are self-employed and don’t understand the tax reporting requirements. Many companies ask employees to become self-employed subcontractors or incorporate a business in order to work for them. This can lead to a myriad of problems for those workers caught up in this situation. Yet very few of those companies provide information for those “new” business operators to be successful in reporting and tax compliance. And this grinds my gears!
Often these subcontractors have no idea what the Canada Revenue Agency’s (CRA) tax reporting requirements are. In the past, their income tax, EI & CPP premiums were deducted and remitted by their employers. After going solo, they generally earn more than $30,000 per year but don’t know that they need to enroll in the GST program once they hit that level of income. They soon find out when they file their personal tax returns that they are in a heap of trouble. Nothing has been remitted.
Let’s do an example of how this works:
Johnny becomes “self-employed” and earns $60,000 for the first year. Of course, he can deduct some business expenses from his income now:
But Johnny hasn’t really kept any of his gas receipts or any other receipts… he manages to dig up $500 of fuel receipts from his glove box. He got copies of his cell phone bills from Bell Mobility that total $1200 for the year, so his net income is $60,000 – $500 -$1200 = $58,300. His tax bill in 2017 will be estimated at $15,270. ($6700 federal tax, $3450 Alberta provincial tax, and $5120 for CPP).
That’s a whooping amount of unexpected money for the taxpayer to come up with by April 30th. Financial literacy is important for not only business owners but for everyone! We need to take a chance and begin to talk about our financial health.
Having trusted advisors, friends and family to support us so we can create our prosperity and live a life of our dreams. Call a CPA today if you or a family member is in this predicament!