1. Reconcile all business income
Compare invoices, bank deposits, e-transfers, cheques, cash and T5018 or T4A slips. A slip is one information source and may not represent all business income.
Keep a list of invoices issued, payments received and amounts outstanding. Reporting only the amounts shown on a T5018 may omit other income.
2. Separate GST/HST from operating cash
GST/HST collected should not be treated as spendable revenue. Track tax collected and eligible input tax credits supported by valid documents in separate accounts.
Review whether you crossed the small-supplier threshold, began charging at the correct time and are filing at the frequency assigned to your CRA account.
3. Organize expenses with evidence
Classify tools, materials, insurance, telephone, software, professional fees and other costs incurred to earn income. A bank statement shows a payment occurred but may not identify what was purchased or its business purpose.
Keep readable invoices and receipts. For mixed-use costs, document a reasonable method for separating business and personal portions.
4. Prepare vehicle records properly
Record total and business kilometres, including the date, destination and purpose of each business trip. Organize fuel, insurance, repairs, maintenance, lease costs or interest as applicable.
Do not assume every trip from home is business travel. A regular place of work and the particular facts may change the treatment.
5. Separate current expenses from capital assets
A small consumable tool may be treated differently from a vehicle, computer or equipment expected to last several years. Capital purchases are generally considered through Capital Cost Allowance.
Posting every purchase as an immediate expense can lead to an incorrect return and future adjustments.
6. Estimate income tax and CPP before the deadline
A self-employed person generally bears both applicable portions of CPP in addition to income tax. The final amount depends on net profit, other income, credits and personal circumstances.
Prepare an estimate before year-end and maintain a separate reserve. If CRA requires instalments, review amounts and due dates to reduce instalment interest.
7. Confirm that you are truly self-employed
Status does not depend only on the written contract or being paid without deductions. CRA considers control, tools, opportunity for profit, risk of loss and other facts of the relationship.
If one company controls when, where and how you work, review the classification. A worker or payer can request a CPP/EI ruling when the status is uncertain.
8. Do not wait for the filing deadline
Although a self-employed individual may have a different filing deadline, a personal tax balance has its own payment due date. Late filing can also delay benefits and trigger penalties when tax is owing.
Provide records early so missing receipts, GST/HST, assets, vehicle expenses and differences with information slips can be resolved.
Official source: CRA: Business expenses. Rules may change and their application depends on the facts.