Questions I Received from Sole Proprietors - June 2024 Prudent Money Coach Tax & Money Tips

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​​Greetings! A reminder for sole proprietors that your tax deadline is this coming Monday, June 17, 2024. 

Anyhow, this is a super late newsletter. I try to make a weekly post on social media, so you can follow me there to get more tax and tips. See all the links below my signature. Thank you for reading. :)

Here are questions I received from sole proprietors (or self-employed).

1. Why do I owe so much taxes? I thought you said my taxes are zero?     
A: Well, yes, your federal and provincial taxes are $0.00, but you have to pay CPP (Canada Pension Plan) premium, which is a double portion - as an employer and as an employee.      


2. Do I have to pay EI (Employment Insurance) as a self-employed?      
A: No, you don’t have to pay EI because as a self-employed, you are responsible for finding your own work. However, you do have an option to contribute to EI so you can get special benefits such as maternity, parental, sickness, family caregiver and compassionate care. See here for more reading: EI Benefits for Self-Employed People


3. I thought you said that I have a refund, but why do I have GST (Goods and Services Tax) owing?     
A: As a GST registrant, you need to file a GST return, which is different from your personal income tax return (T1). It is possible to have a refund on your personal income tax return and have a balance owing on your GST return. As a GST registrant, you may have collected GST from your customers on behalf of the government. It is now time to remit that tax money back to the government. It was never your revenue, you were collecting it on behalf of the government.     


4. How much should I charge now that I work for myself?
A: Let’s start simple. 
Assume:
- I earn $80,000 per year. 
- I get an extra 4% pay-in-lieu of vacation.
- I get 5 sick days per year.
- There are no other benefits. 
- Now that I’m self-employed, I will pay the employer-portion of CPP (Canada Pension Plan) premium.

Let’s do the calculation. 
- $80,000 per year = $80,000/ 52 weeks/ 5 days per week/ 8 hours per day = $38.46/hour
- 4% in-lieu = 4% x $80,000 = $3,200
- 5 sick days = 5 x 8 hours/day x $38.46/hour = $1,538.46
- CPP (employer portion) = $3,867.50
Total = 80,000 + 3,200 + 1,539 + 3,868 = $88,607

Hourly rate = $88,607/ 52 weeks/ 5 days per week/ 8 hours per day = $42.60/hour

This is a simplified calculation. It doesn’t take into account any benefits such as health, dental, life insurance, pension, etc. It also doesn’t consider extra bookkeeping work, higher tax preparation cost, out-of-pocket expenses, etc. Further, the calculation does not include materials, inventory, tools, supplies, etc.


That's all for June. Have a great rest of the month!