SELF-EMPLOYMENT INCOME

Is the person eligible to have their tax return prepared by the tax clinic?

The CRA discourages tax clinics from preparing a tax return for persons with self employment income unless^[1]

• total income is under $1,000 and it is reported in a T4A box 48;
• no expenses are being claimed; and
• the individual is not registered for HST under the Excise Tax Act.

Some clinics, in their discretion, might prepare returns if self-employment income is not more than $3,500. Above this amount CPP contributions begin, making the tax situation less simple.

The tax Ombudsperson’s 2024 Annual Report recommended that the CRA amend the eligibility criteria for the CVITP so that self-employed individuals with modest income and simple expenses can access free tax clinics. The recommendation appears to have been accepted by the CRA according to the 2025 Annual Report. However, CVITP guidelines for clinics have not significantly changed.

Does the self-employed person have a T-slip reporting their income?

Self-employed individuals might receive a T-slip from the client or business they provided services to. Common slips include:

T4A – Box 48: Reports fees paid to self-employed individuals providing services to another business. Possible examples are a food delivery driver, PSW, housecleaner, bookkeeper, landscaper, childcare provider, or security guard. The fees in box 48 are not supposed to include any HST paid by the issuer.

T4A – Box 20: Reports commissions paid to a self-employed individual.

T5018 – Construction Sub-Contractors: Used for construction sub-contractors.

T4A Slips are usually not issued:

For service fees reported in Box 48, the Income Tax Act requires that a T4A must be issued if total payments for the year are $500 or more.^[2] However, at the same time, the CRA has publicly stated it is not assessing penalties for failing to report amounts in Box 48, so this requirement is often ignored and slips are usually not issued (except for trucking industry).^[3]

UFile steps for reporting income if person has a T4A-slip:

1. As with any other T-slip, add the T4A-slip to UFile in the T4A section.
2. Under Interview Setup, check off the box for Self-employed business income. In the Self-employment income section, click the plus sign next to T2125 – Business Income.  

1. In the Identification section, fill in the business name (use the client’s own name if the client hasn’t registered a business name). Enter dates for the beginning and end of the fiscal year.  This will usually be Jan 1st to Dec 31st. Choose a business classification by selecting the best one that applies, even if it’s not perfect.
2. In the Income, expenses section, do NOT add the T4A income amount as Gross sales, commissions or fees. Instead, scroll down and enter the income corresponding to the T-slip and box number.

UFile Steps if Self-Employment Income is not reported on a T-Slip:

If a person earns self-employment income that is not reported on a T-slip, the income is entered in UFile under the Income and Expenses section of the T2125 as Gross Sales, Commissions, or Fees.  

Deadline for filing and paying taxes:

If reporting self-employment income, the due date for filing a return is June 15th, not April 30th. However, if the person owes taxes they must be paid by April 30th. For example, if a self-employed person files and pays taxes on  June 1st, they will incur an interest charge for late payment of tax, but they won’t incur a penalty for late filing.

Should the income instead be reported as Other Employment Income:

If income is not reported on a T-slip and is $3,500 or less, it’s likely acceptable to report it as “occasional earnings” under Other Employment Income, even if it appears to come from self-employment.

The $3,500 threshold is important because CPP contributions are not calculated for other employment income, but are calculated on employment and self-employment income above $3,500.

For example, if someone reports $10,000 of “Other Employment Income” on Line 10400 and has no T4 or self-employment income, UFile will show no CPP or EI contributions owing. But if the same $10,000 is reported instead as self-employment income, UFile will generate a Schedule 8 and calculate CPP contributions equal to 11.9% x the income over $3,500. The CPP contribution will reduce a refund or increase a balance owing (although at the same time, the contribution could increase future CPP retirement benefits).

For some clients attending the clinic, it can be unclear whether income is from regular employment, casual employment, or self-employment—for instance a babysitter providing periodic services to a family. If the income is $3,500 or less, the determination doesn’t make a practical difference because regardless of how it is characterized and entered, no CPP contribution is required, the tax owing/refund will be the same, and the GST/HST credit, Trillium benefit, and Canada Workers Benefit will be the same.

If, however, the income is over $3,500 and classified as other employment income, this could trigger an inquiry by the CRA as to the source and nature of the earnings. The CRA doesn’t want people avoiding CPP contributions, and expects either a T4 to be issued for non-casual employment or a T2125 to be completed for self-employment.

Is income from a hobby reportable?

Someone might receive a relatively small amount from a hobby, and wonder if it is reportable.

While reference is often made to “self-employment income” as a category of income, the Income Tax Act doesn’t actually have such a category. The Act requires a person to report “business” income, and in particular, “profit from that business”.^[4]

Amounts you receive are reportable as business income if the activity that generated the amounts was undertaken in a sufficiently commercial manner with the predominant intention of making a profit.^[5]

In some cases it might not be obvious what is the predominant intention in carrying out an activity. It may assist to consider the following excerpt from a court decision:^[6]

“The existence of a personal element must be put in perspective. There is frequently a personal element in the carrying on of a commercial enterprise in the sense that the person derives great personal satisfaction from the activity. This does not make the activity any the less a business. Professional artists, photographers, writers, musicians (and sometimes even lawyers) no doubt derive great satisfaction from what they do but if their activity is commercial and is intended to yield a profit it is nonetheless a business. It is only where the personal element so overshadows any element of commerciality as to substantially displace it that one may conclude that the activity is merely a hobby and is not a business at all.”

Cash v. Accrual Accounting:

When a self-employed person provides a service and issues an invoice in one year but does not receive payment until the next year, income is reported in the year the invoice was issued, not the year payment was received. This follows the accrual method of accounting.

The Income Tax Act does not explicitly require self-employed individuals to use either the cash or accrual method, but the CRA generally requires the accrual method for most self-employment income. According to CRA Guide T4002:^[7]

 "Farmers, fishers and self-employed commission agents can use the cash method or the accrual method to report income. All other self-employment income must be reported using the accrual method."

There is no evidence that CRA considers gig delivery drivers to be “self-employed commission agents” for purposes of the cash-method exception.

A common situation arises when a person reports revenue in the correct tax year under the accrual method but receives a T4A slip for that revenue in the following year. In this case, the T4A amount should not be entered into UFile or the T2125, because the income was already reported in the previous year. UFile cannot simultaneously report the T4A and zero out the revenue for accrual purposes, so the correct approach is to ignore the T4A entirely.

Despite the discrepancy between the T1 return and the T4A slip, a CRA review is unlikely to be triggered since the CRA is aware this situation occurs frequently.

CPP contributions:

CPP contributions are required on net self-employment income over $3,500. If contributions are owed, the individual must file a tax return, even if no federal or provincial tax is payable. The amount payable is 11.9% on net income between $3,500 and $71,300.

Self-employment income from another province:

If a client earns self-employment income in a province other than Ontario, that income is taxed by the province where it was earned. In this case, Form T2203 must be completed. In UFile, this can be done under the T2125 section, in the sub-section “Allocating income to multiple jurisdictions”. UFile will automatically generate a T2203 if income is reported from outside Ontario.

References:

• CRA Guide T4002, Self Employed Business, Professional, Commission, Farming and Fishing Income
• Income Tax Audit Manual, Chapter 27, sections 27.2.1 and 27.2.2