When I was graduating massage school, I asked one of my clinic supervisors the thing she wished she knew after she graduated. She told me “make sure to save 30% of your income for taxes”.
I started working in July of that year. So when I did taxes, I owed about $1200. Which to me wasn’t bad because I already had more than that saved up. I thought oh, okay this isn’t so bad, even if I have to pay double that every year that's doable. I also was under the impression that, that was the amount I collected for GST. I thought it made sense. I thought that's roughly what I would be owing every year.
I’m a massage therapist, not a mathematician.
The public school system and massage college neglected to teach me about taxes as a self employed person. I always had a rough understanding but I still couldn’t wrap my head around it. In massage school, my business teacher only told us to get a good accountant, that was it. I didn't even know what constituted as good accountant. My dad always did my taxes.
After my first full year as a massage therapist, I found out a owed over $10 000 to the Government of Canada.
I almost shit myself.
I talked to another massage therapist I work with and she told me THAT'S NORMAL.
WHAT THE HELL!
So here is the thing...
I am an independent contractor. Technically that makes me “self employed” and I don’t get taxes deducted off my pay cheques. I collect 70% of what the clinic charges for massages and I give the clinic a 30% commission from every massage. I also collect the GST for every massage which is 5%.
I have to declare to the government how much I made in the year and how much GST I collected.
For 2020, I only had to do that for 6 months but for 2021 I had to do it for 12. My income was way higher in 2021 and I collected much more in GST.
Luckily, I had enough saved up to cover the cost but I still had to eat through all of my savings for it.
Anyway, I just want to share some tips that learned through this experience and what I plan to do to prepare for next year and moving forward:
(Disclaimer, this only applies to independent contractors and business owners in Canada, I can’t speak to employed individuals)
Understand what you can write off as a business expense and keep those receipts
Obviously, linens, oils, table, furniture for your room, and decor are all business expenses but did you know that you can also claim:
Mileage and anytime you are driving around with something related to your business in your car. Do you use a lap top for your SOAP notes? If that is in the car with you when you drive to work, you can track that mileage. Did you just buy new oil? Keep the receipt and note the mileage it took to get it and take it back to the office. If you do mobile massage, you can claim all that mileage too. And yes fuel and car maintenance costs are write-offs as well.
You will need to keep track of the total mileage for your car for that year, and use a mileage log to determine how many km's you drove related to work. The percentage of that is what will determine how much of the fuel and car related costs will be considered a write off. For instance, if you drove 10,000km total in the whole year and you only drove 200km related for your business, than 2% of your total km's were used for business so only 2% of the costs of your fuel and maintenance will be written off. This is automatically calculated in the tax form, all you need to keep track of is how many km you drove total in the whole year and how many km you drove for your business
If you go out to dinner and someone asks about work, booking an appointment, discussing treatment plans, showing someone stretches etc. that dinner becomes a write off. Did you go to a coffee shop to make an Instagram post related to your business, keep that receipt too. As contractors, you do a lot of things that you don’t get paid for so anytime you spend money while doing work, keep that receipt and write it off.
Do you use your cell phone for making ads? Booking clients? Doing notes? Playing music during treatments? You can declare a percentage of your cell phone bill as a business write off too.
The clothes you wear at work are a business write off, as well as the gas you used to get those clothes, the mileage it took you to get there etc.. you see where I’m going with this?
Do you sometimes do soap notes, make advertisements, and/or take clients at home? A portion of your home can be a business write off. If you pay rent or a mortgage you can claim a portion of that too.
Any continued education, the travel involved to get there, the meals you need during that time are write offs as well. They're only a write off for as long as the course is happening. If you extend your trip to sight see, you can't write off any of those expenses.
Invest in an RRSP or a First Home Savings Account (FHSA). Your contributions are a write off.
Understand how much you are collecting in GST from each pay cheque and put that money in aside. GST payments must be paid to the government by March 31 which is different than federal income tax which is normally April 30. Also note that the GST you pay when you purchase items for work balance out the GST you collected. Keep record of all the GST you spent on supplies and enter that when you are submitting your GST collections. Claiming GST is done directly through the CRA website which is different than federal income tax.
When CRA sees that you owed more than $3000 in income taxes, they will expect you to pay that in instalments for the next year. They will calculate your instalment amount based on the amount you owed from the previous year and expect you to pay quarterly (March, June, September, and December). That doesn’t mean you have to pay lump sums in those months (I mean you could but you don’t have to), but you have to meet their target by those months. If you don’t, you will have to pay 6% interest. What I recommend is PLAN AHEAD. Try to give a 23-30% of each pay cheque to the CRA whenever you get paid and be mindful that by March, June, September, and December you should hit the government's target amounts in those months.
Get a good accountant, and by good I mean someone who understands what it means to be a self employed RMT and is willing to explain and help you understand what receipts you need to keep and the things to keep track off. For the last couple of years I have been doing my own taxes using Turbo Tax and also buying the feature to talk to a CPA while I do it to answer questions and get them to review it before I file. I highly suggest doing this as well. And of course, whether you use an accountant or purchase Turbo Tax, both are tax write off's.
I know there are people who don’t pay their taxes but I think as a contractor or business owner it is important to. I learned that if you don’t and you need to collect EI (employment insurance) or you decide to work as an employee somewhere, the government will automatically take a chunk of your pay cheque to collect what you owe them.
I hope this post helped you navigate the Canadian Tax scene a bit as a business owner or independent contractor. If you have other tid bits of information leave a comment below or shoot me an email!
If you are an accountant reading this, is there anything you’d like to add? Comment below!
All the best,
~Felicia
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