If you happen to babysit your neighbour’s kid once or twice every few months, does that mean you’re employed by then or does it mean that you’re running your own business? During tax time, determining whether what you’re earning is casual income or whether you have your own business affects how you file for taxes.
A casual employee is someone who’s brought into the company to help for an indefinite period of time, whether to handle an influx of business or sudden circumstances or someone who works for the business on occasion. Whether you’re selling items online through Kijiji or Craigslist, taking on small miscellaneous jobs or earning tips from your job as a waiter or waitress, it’s basically whatever income you receive that isn’t on your T4. If the CRA finds discrepancies, you can be audited later on so save yourself the trouble while you’re ahead.
Keep any receipts or invoices or keep track of any extra money you make so you can report it on line 104 – other income, during tax time.
On the other hand, someone who regularly sells goods or provides services is considered to own their own business. If you are self-employed, you’ll need to fill out the CRA’s Statement of Business or Professional Activities (T2125 form). You’ll be required to fill out your business income, professional income, you’ll only fill out one or the other, and any business expenses that apply. Check for the industry names and codes list that needs to be used when you’re filling out your form. An up-to-date list can be found here.
If you run multiple businesses, you need to fill out one form for each business. The form should be submitted with your regular income tax return.
Make sure you’re reporting all your income accurately or you’ll be hit with a 10% penalty fee for the money you didn’t report on your first offense. If the CRA discovers you didn’t report some income on purpose or there’s a huge discrepancy, the penalty can be 50% of the false number.
Make sure you familiarize yourself with the CRA’s self-employment page that explains the definition of all the sections you’ll be required to fill in.