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Self-employed? How to avoid tax debt

by Blaire MacNeil

Insolvency Trustee, Grant Thornton Limited

Whether it’s offering a product or service, consulting, or renting, more and more Canadians are creating careers or second jobs as part of Canada’s self-employed gig economy.

What’s a gig economy? It describes a growing workforce of people who earn a living or supplement their income through gigs. The term “gig” describes different forms of self-employment or entrepreneurship like freelancing, contract work, and other sources of self-generated income. The Canadian gig economy is driven by the brave many who choose to create their own career path and be their own boss.

The number of Canadians who work second jobs or have a side gig is increasing, with 28 percent participating in the gig economy* in 2023, up from 13 percent in 2022. The growth of the gig economy offers new avenues for Canadians to achieve self-driven employment and flexibility in where, how, and when they choose to work. Joining the gig economy also comes with risks, such as unpredictable income, economic uncertainty, and financial mismanagement.

As a Licensed Insolvency Trustee, I’ve listened to many self-employed individuals share their financial challenges, most notably dealing with unconquerable tax debt. Diligently filing your income tax returns and making your remittances to the Canada Revenue Agency (CRA) on time is critical, as it will save you the cost of penalties, interest, and financial stress.

Two best practices for those in the gig economy

1. Keep proper records.

The moment you begin working for yourself is when you start maintaining proper books and records. This help you not only at tax time, but also in preparation for a CRA audit, where you’re required to keep records and supporting documents for six years from the end of the last tax year they relate to.

Keep a record of your income/revenue and expenses—and most importantly, the day-to-day transactions impacting your business. Record-keeping software and spreadsheets can keep you organized, and mobile apps can help you capture expenses

Cloud accounting with Grant Thornton automates standard administrative and accounting work, freeing up your time to concentrate on more important work. This gives you financial visibility and confidence to build a strong and profitable business.

2. File your taxes on time.

Although there are benefits to being self-employed, a pitfall is overlooking the fact that income is subject to tax, and a good routine is to set aside 20–25 percent to cover this expense.

June 15 is the annual filing deadline for submitting tax returns for the self-employed or sole proprietor. However, if there is a balance owing, payment must be remitted to the CRA by April 30 to avoid penalty and interest.

The CRA charges a 5 percent penalty on balances owing, plus 1 percent for every month the amount remains outstanding. This can add up to a maximum penalty of 17 percent.

Familiarize yourself with CRA’s online portals My Account for Individuals or My Business Account, where you can review the status of your tax accounts (like GST/HST) to see any remittances you’ve paid and stay on top of important due dates.

How does CRA collect tax debt?

An accumulation of tax debt year over year has consequences. CRA has remedies to collect outstanding debt, often with no notice given to you. With interest compounding daily, it’s best to pay off your balance owing as soon as possible.

Keep GST credits or future tax refunds CRA owes you and apply to your tax debt.

Seize funds in your bank account. The CRA can garnishee your assets without going to court and serve notice on your bank or any party who owes you money.

Register a judgment against your property with the Federal Court of Canada for the debt owing. This means that if you sell your home, the CRA gets first access to the equity, and you receive whatever remains.

How to find support

Owing tax debt can be stressful, but being proactive is key to ensuring you stay compliant with the CRA. Hire a bookkeeper or accountant to help you stay organized and allow you to focus on your business. Be realistic about your skills and abilities when it comes to business results. Record-keeping isn’t everyone’s strong suit, but the CRA doesn’t accept this as a reason to ignore tax filings and remittances.

When in doubt, seek help from a professional. If you need help getting started, consult with a tax professional, and if you’re struggling financially or worried about paying off your tax debt, speak to a Licensed Insolvency Trustee about your options before the CRA acts against you.

I’m motivated by helping people solve their debt problems. For the past several years, I have been working in consumer insolvency, with a focus on informing and educating clients on the options available to resolve their financial difficulties.

I am a Licensed Insolvency Trustee and a Chartered Insolvency and Restructuring Professional with Grant Thornton Limited. I am a Certified Management Accountant and Chartered Professional Accountant and have completed my MBA

Learn more about income tax debt. Contact me at 902 563 3523 or

*Canadian HR Reporter: Number of gig workers doubles in 2022 (Mar 2023)

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