Canada - deductions for mileage for self-employment

[ChipmunkSavings]

Hello!

I have recently started doing mystery shops around my home town. I have been told that I will receive a T4 if my earnings exceed 500$ per year. The agreement also said that I was considered self-employed, and I am therefore not eligible for unemployment and such.

I have to travel a bit (up to 20 km round-trip) for these assignments. I read somewhere that this can be considered a business expense, and therefore tax-deductible. However, I'm trying to find information on the CRA website, and I'm not sure if I understand it correctly. It also talks about depreciation and cost of acquisition. I was thinking more along the lines of X.XX$ per km, but I guess there are different ways to calculate it?

Thanks a lot for your help! English is not my first language so I'm sorry if my question seems a bit confused.

[Retire-Canada]

Hello!

I have recently started doing mystery shops around my home town. I have been told that I will receive a T4 if my earnings exceed 500$ per year. The agreement also said that I was considered self-employed, and I am therefore not eligible for unemployment and such.

I have to travel a bit (up to 20 km round-trip) for these assignments. I read somewhere that this can be considered a business expense, and therefore tax-deductible. However, I'm trying to find information on the CRA website, and I'm not sure if I understand it correctly. It also talks about depreciation and cost of acquisition. I was thinking more along the lines of X.XX$ per km, but I guess there are different ways to calculate it?

Thanks a lot for your help! English is not my first language so I'm sorry if my question seems a bit confused.

So you need to register yourself as a sole proprietor or some other form of business to be self-employed. That's not hard.

Then track your business use of your vehicle and your vehicle related expenses. There is a form you'll add to your tax return that will have spots for all this info and will give you an expense value to deduct from your income.

The way it will work is your total vehicle costs in 2017 are say $5,000 and you drove a total of 20,000kms with 8,000kms being for your business. Then you'll get to deduct 40% of $5,000 or $2,000 from your income.

If you have an accountant or tax prep person I would chat with them now so you get everything setup and tracked correctly. If you do your own taxes start recording everything related to your business expenses including the vehicle and get yourself registered appropriately.

If your business income exceeds a certain threshold [can't think of it at the moment] you'll need to register for GST/PST or HST and collect that from your client then remit it to the Government. Your vehicle will need extra insurance possibly as it's now a business vehicle not just a personal use vehicle. You will end up paying for both your end of the CPP and the employer's end so that will be an extra expense.

Anyways lots to consider. I would get some expert advice unless you feel confident researching all of this on your own.

[ChipmunkSavings]

I'm aiming to make 1-2K this year with the mystery shopping. Is it worth registering myself as a ''sole proprietor''?

[Retire-Canada]

I'm aiming to make 1-2K this year with the mystery shopping. Is it worth registering myself as a ''sole proprietor''?

If your client is hiring you as a contractor you have no choice. You are either an employee or self-employed. Same with the vehicle insurance if you drive your car for work [employee or self-employed] your insurance requirements will likely change - although you need to confirm with your insurer to understand the full implications.

That said it may not be legal for your employer to hire you that way. They may be trying to avoid paying CPP and other costs associated with having an employee. But just calling someone a contractor doesn't make them one.

You can try and "fake" it and see what happens, but obviously there are legal and financial risks to tax and insurance fraud.

[ChipmunkSavings]

It seems I am a contractor. This is the agreement :

Your services are rendered as an independent contractor. You are paid a predetermined fee for each assignment you successfully complete. You are not an employee of XX, and nothing contained herein shall create the relationship of employer and employee. Therefore, XX will not withhold any amounts for income tax or Employment Insurance (EI) or Canada/Quebec Pension Plans (CPP/QPP) from your compensation nor make any payments toward income tax, EI, or CPP/QPP with respect to your earnings. You will not be an agent of XX. It is up to you to declare all your income to your municipal, provincial, state or federal tax authorities, as your business income.

However, they will likely send me a T4 if I exceed 500$.

[Retire-Canada]

It seems I am a contractor. This is the agreement :

Your services are rendered as an independent contractor. You are paid a predetermined fee for each assignment you successfully complete. You are not an employee of XX, and nothing contained herein shall create the relationship of employer and employee. Therefore, XX will not withhold any amounts for income tax or Employment Insurance (EI) or Canada/Quebec Pension Plans (CPP/QPP) from your compensation nor make any payments toward income tax, EI, or CPP/QPP with respect to your earnings. You will not be an agent of XX. It is up to you to declare all your income to your municipal, provincial, state or federal tax authorities, as your business income.

However, they will likely send me a T4 if I exceed 500$.

If you get a T4 you are an employee.

Have a read of this: http://www.cra-arc.gc.ca/E/pub/tg/rc4110/rc4110-e.html

[ChipmunkSavings]

If I look at the ''indicators'' of being an employee, it seems pretty clear that this is self-employed. I am in Québec, which seems to be another set of rules completely! I would say that I do have 5 out of the 6 ''self-employed'' indicators for Québec, but I also sort-of have 3 of the ''employed'' indicator. I would think that the contract, which specifies that I am a contractor, would be enough? The T4 seems to be muddling the waters though. Thank you for helping me understand this !

[Retire-Canada]

If I look at the ''indicators'' of being an employee, it seems pretty clear that this is self-employed. I am in Québec, which seems to be another set of rules completely! I would say that I do have 5 out of the 6 ''self-employed'' indicators for Québec, but I also sort-of have 3 of the ''employed'' indicator. I would think that the contract, which specifies that I am a contractor, would be enough? The T4 seems to be muddling the waters though. Thank you for helping me understand this !

Since you are talking about a small amount of $$ if you set yourself up as a sole-prop and file your taxes accordingly you should be okay. The worst case is the CRA decides you are not and reassesses you. You're not going to jail for that. You are just paying the taxes owed + penalties + interest.

My bigger concern would be your vehicle insurance. If you don't have proper coverage you can be denied insurance and if you caused an accident that could be a $1M+ bill. So I would definitely talk to your insurer and see what they say.