The social insurance number (SIN) explained

A social insurance number, often referred to as a SIN, is a 9-digit identification number you need to work in Canada. Your SIN allows you to receive benefits and services from the Government of Canada. The federal organization that issues SINs is Service Canada.

For citizens and permanent residents of Canada, the first digit of their SIN is typically associated with their province or territory of residence when they first applied for their SIN.

Your SIN does not expire. You may be issued a new SIN only if there is proof that your original SIN was used fraudulently.

Who gets a temporary SIN

A temporary SIN is issued to visitors, permit holders, refugees, and temporary workers who are legally entitled to work in Canada. These numbers begin with a 9 and have an expiry date.

Getting a SIN

You may already have a SIN. In Canada, parents and legal guardians will usually apply for their child’s SIN when they are born. This is done through the Newborn Registration Service.

If you do not have a SIN, you can apply for one online, by mail, or in person through Service Canada.

You can also visit a Service Canada office to confim if you have a SIN and retrieve it.

You should do this if you:

• are not sure if you have a SIN
• forgot your SIN
• lost your SIN

Keep your SIN safe

Your SIN is unique, personal, and confidential. You are the only person who is supposed to use it.

You are responsible for keeping it safe. If you lose your SIN, this could lead to fraud or even identity theft.

Who may need your SIN

There are certain situations where you must provide your SIN.

For example, you must give your SIN to:

• your employer when you start a job
• your financial institution when you open an account that you'll earn interest or income from
• a government agency or department to access benefits or services
• the CRA when you do your taxes

Your employer and your financial institution need your SIN to send information about your income to the CRA. They are also responsible for protecting your personal information.

Impact of the employment status explained

There are important differences between being an employee and a self-employed individual. Your employment status may affect your entitlement to employment insurance (EI) benefits and may also impact your obligations under other federal legislations, such as the Canada Pension Plan (CPP) and the Income Tax Act.

Being an employee

Generally, an employee is hired to perform specific duties under the direction and control of the person or company (the employer) who hired them.

If you are an employee, your employer has the right to direct and control:

• the work you do
• when you do the work
• how your work should be done

Employees often receive an hourly wage and normally do not incur expenses to carry out their work. An employee is not seen as operating their own business and does not normally make a profit or suffer a loss. An employee may be entitled to benefits such as:

• paid vacation
• other paid leave
• medical insurance

Being a self-employed individual

A self-employed individual carries out their own business and offers their services to another person or company (the payer). They are not under the direction or control of the payer they provide the service to.

A self-employed individual:

• has the knowledge and experience to do their work without training or instructions from the payer
• can have financial risks and may incur a loss if they have fixed monthly costs, such as rent, and don’t receive income
• can negotiate their rates and can accept or refuse contracts to generate profits

Asking the CRA to make an employment status determination

If you are unsure whether you are an employee or a self-employed individual, you can ask the CRA to complete a Canada Pension Plan and employment insurance (CPP/EI) ruling.

A CPP/EI ruling is a decision by the CRA that determines if:

• a worker is an employee or is self-employed
• the worker’s employment is pensionable under the CPP, insurable under the Employment Insurance Act, or both

If a worker is an employee, and the employment is pensionable and insurable, then both the employee and employer have to pay CPP contributions and EI premiums. The employee’s portion is reflected on their pay stub and their T4 slip.

If a worker is self-employed, they are responsible for paying CPP contributions on their income. Also, they are responsible for paying EI premiums only if they are registered for the EI program to access special benefits.

You can ask for a CPP/EI ruling by June 29 of the year after the year the question relates to.

Common situations

The second page of a TD1 form requires you to provide more information about your circumstances. The following are some of the most common situations.

Working for more than one employer at the same time

You will be asked to fill out a TD1 form every time you start a job with an employer. If you work for more than one employer at the same time, you can only claim amounts such as the basic personal amount on one of the TD1 forms you fill out. Otherwise, your employer will not deduct enough tax from the income they pay you compared to your total income. This could mean that you end up owing a lot of money when you file your income tax and benefit return.

If you have more than one employer at the same time and you filled out a TD1 form claiming personal tax credit amounts, you cannot claim them again for the other employer in the same tax year.

If your total income from all sources will be more than the personal tax credit amounts you've already claimed, you should enter 0 on line 13 of the first page of the latest TD1, and tick the box “More than one employer at the same time” on the second page.

Total income less than total claim amount

If your total income from all sources will be less than your total claim amount, you may not owe any tax. In this situation, your employer does not need to deduct tax from your pay.

Tick the box “Total income less than total claim amount” on the second page of the TD1 form.

Additional tax to be deducted

If you receive other income where tax is not taken off, such as cash tips or occasional earnings, you may want your employer to deduct more tax from your pay. This means that you'll pay a little bit more tax each time you are paid rather than possibly having to pay a larger amount when you file your income tax and benefit return. Any amount that you overpay will be refunded to you after the Canada Revenue Agency processes your return.

Enter the extra amount you want the employer to deduct on the second page.

Provincial or territorial TD1 form

You may also need to complete a provincial or territorial tax credits form for your province or territory of employment.

You must sign and date the TD1 form and give it to your employer.

Payroll deductions

When you get your first paycheque from your employer, you might be surprised if you receive less money than you were expecting. This happens because your employer is responsible for deducting money from your pay, and sending it to the Canada Revenue Agency (CRA) on your behalf.

One of the main deductions from your pay is for income tax. Regular income tax deductions are to cover the income tax you might owe for the year. Any of this tax that you do not owe will be refunded to you after you complete an income tax and benefit return for the year.

Your employer calculates your income tax deductions based on the information you entered on Form TD1, Personal Tax Credits Return. This is a form that you complete when you start a new job.

Deductions for social programs

Your employer must also deduct other amounts from your pay, including:

• Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions
• Employment insurance (EI) premiums

These amounts are calculated based on a percentage of your income. Your employer is also required to contribute a certain amount for CPP or QPP and EI in your name.

Benefitting from deductions

The payments that you make now to these programs, provide security down the road. For instance:

• By working and contributing to the CPP or QPP, you will receive pension payments when you retire
• If you have a child and go on maternity or parental leave, or are laid off by your employer, the EI cheques you may receive while you are off work will be partly funded by the EI premiums you paid
  Note: The Province of Québec is responsible for providing maternity, paternity, parental and adoption benefits to its residents.

If you are under the age of 18, you do not have to contribute to the CPP or QPP. Deductions from your pay for the CPP or QPP will automatically start when you turn 18.

Depending on your employment situation, your employer may also deduct other amounts, such as union dues or contributions to a company health plan or pension plan. These types of job-specific deductions are not sent to the CRA.

Keep track of your pay stubs

It is a good idea to check your pay stubs regularly to make sure they are accurate. You can track the hours that you work, and multiply the number of hours by the hourly pay rate to see if the amount is correct.

Keep your pay stubs in a safe place. You may need to review them at a later date or provide them as proof of your income.

The T4 slip explained

A T4, Statement of Remuneration Paid, usually referred to as a T4 slip, is an important document that your employer gives you. Your T4 slip shows information about your employment income and payroll deductions for the entire calendar year. You use the information on this slip when you do your taxes.

Your tax slips are issued based on the province or territory where you work.

If you compare your last paystub received for the year to your T4 slip, you should see that the year-to-date amounts on the pay stub match the amounts shown on the T4 slip. If you notice any difference, you should speak with your employer to get the correct information before contacting the CRA.

Breakdown of a T4 slip

Example

T4 slips and taxes

A T4 slip is one of the most common documents you will use when completing your income tax and benefit return. The slip is important because it provides a history of your employment earnings for the calendar year, which is the same as the tax year printed on the return. You will use the information found on your T4 slip(s) in different calculations when completing your return.

Your employer has to send you a T4 slip by the end of February following the year in which you worked for them. You may receive a digital or physical copy, but both will show the same information. If you have an online account with your employer, you may be able to view your T4 slip online.

If you had multiple jobs in the year, you will receive a T4 slip from each of your employers. It is important that you remember who you have worked for, so that you do not forget to report even a small income.

Your employer must also send a copy of your T4 slip to the CRA. This means you can access your T4 slips through My Account, if you are registered for that CRA service. You will be able to register for My Account after you have sent the CRA your first completed income tax and benefit return.

What is self-employment

A self-employed individual is someone who earns income by working directly with clients or customers. This income could be earned with a contract of services or without one. If you are not paid through an employer, you are self-employed.

When you start an activity to make money, any profit you earn is considered self-employment income. All self-employment income you earn must be reported on your income tax return.

Reporting all your income allows you to:

• increases your potential maximum amount for a mortgage or loan
• increases your Registered Retirement Savings Plan (RRSP) contribution room
• allows you to pay into the Canada Pension Plan (CPP) or the Quebec Pension Plan (QPP), which will benefit you when you retire

Types of self-employment income

Self-employment income can come from different sources, including online platforms and transactions.

If you are conducting your business using mobile apps or internet apps, you are considered part of the platform economy.

The most common types of self-employment income earned within the platform economy include:

• driving for a rideshare app like Uber or Lyft
• working as a courier for a food delivery company like Uber Eats or DoorDash
• selling things on websites or online marketplaces like Etsy, eBay, or Amazon
• working as a freelancer, either independently or through online platforms like Clickworker, Crowdsource, or Fiverr
• earning revenue from brand sponsorships or ads as a social media influencer on platforms like TikTok, YouTube, or Instagram

Other common types of self-employment income include:

• Working in independent trades like a carpenter, contractor, electrician, mechanic, or plumber
• Participating in a barter transaction

If you participate in a barter transaction

A barter transaction is trading your goods or services for goods or services provided by another business. You need to record the value of the goods or services you receive and report it as income on your tax return.

Self-employment and becoming a business

If you are self-employed, you are considered a small business.

Usually, the first day of your business is when you begin activity that is part of your regular business, or when you begin activity to get your business started.

You may have expenses related to the activities to set up your business. For example, an activity can include buying supplies or equipment.

Expenses can usually be deducted on your tax return, even if your business fails.

There are three types of businesses:

• Sole proprietorship:
  • there is one owner of the business
  • the business is not incorporated
• Partnership:
  • there is more than one owner
  • the ownership of a business is shared by individuals, partnerships, or corporations
• Corporation:
  • the business has been incorporated
  • it is a separate entity that can enter into contracts and own property in its own name, separately from its owners

Incorporating a business

Incorporation is the process of registering your business at the federal or provincial level to create a new legal entity called a corporation. An incorporated business has the same legal rights as a person.

As your business evolves, you can:

• change the number of owners of the business
• choose whether or not the business is incorporated
• choose whether the business is incorporated provincially or federally

Your responsibilities when you are self-employed

Keep records of all your transactions

You must keep detailed records of all your income and business expenses. The CRA may review your records to see if they support what you claimed on your tax return.

Report and pay tax on the income you’ve earned

Report your income and expenses, on your tax return using Form T2125, Statement of Business or Professional Activities.

When you work for yourself, no tax is withheld from your income. Form T2125 is used to calculate how much income you pay tax on. You can also deduct expenses so that you pay taxes only on your net profit.

• Business income
• −minus Business expenses
• =equals Profit (+plus) or loss (-minus)

If you are using certified tax software, it will ask you questions and auto-fill Form T2125 for you.

Contribute to the CPP or the QPP

Most individuals over 18 who are working in Canada must contribute to either:

• the CPP (excluding residents of Quebec)
• the QPP (if you are a resident of Quebec)

Normally, employers deduct their employees’ CPP or QPP contributions from their pay. The employer also contributes toward the employees’ CPP or QPP.

When you are self-employed, you are responsible for paying the employer and employee portions of these contributions.

You calculate and pay these contributions when you do your taxes. You can also claim a deduction for part of the contribution amount.

Filing a GST/HST return

You must file a GST/HST return to report the GST/HST you collected, even if you have no:

• business transactions
• net tax to remit

You can use your GST/HST return to claim the GST/HST you paid on your expenses as input tax credits.

Due date for filing

Your reporting period determines the due date to file your return.

Your reporting period may be monthly, quarterly, or annually depending on the total taxable sales made in the fiscal year.

When a due date falls on a Saturday, a Sunday, or a public holiday, the CRA recognizes your payment is on time if the CRA receives it on the first business day after the due date.

Your personalized GST/HST return will show your due date on the first page.

Keeping your records

When you are self-employed, you are responsible for your own financial record keeping. It is important to keep accurate and up-to-date records. Some benefits are:

• Possibly paying less in taxes
  • Your records may include information about:
    • deductible expenses you can claim
    • tax credits you may be eligible to claim
• Understanding your business's finances
  • Accurate record keeping helps you calculate your profit or loss and see trends in your business
• An easier review process
  • Your records will be helpful if the CRA asks to review your income tax return or GST/HST return

Types of records you should keep

The records you keep will serve as proof of your income and expenses. The types of records may be different depending on the type of work you do.

You may need to keep records like:

• emails
• invoices
• bank statements
• logbooks that record business mileage
• contracts
• purchase receipts
• credit card statements

Generally, you should keep all your records and supporting documents for 6 years after the tax year they relate to.

Tax tips for reporting your self-employment income

When you are self-employed, you need to report all your income and expenses on your personal tax return. If applicable, you must also report all your employment income from other employers.

To report your self-employment income and expenses, fill out Form T2125, Statement of Business or Professional Activities. If you are using NETFILE-certified tax software, you will be asked the necessary questions to auto-fill this form.

Know your tax deadlines

• When you’re self-employed, you have until June 15 to file your tax return.
• If you think you will owe taxes, you should pay by April 30 to avoid being charged a late-filing penalty and interest.

If you are collecting GST/HST, know the due date of your GST/HST return. The due date is determined by your business’s fiscal period.

Understand your business’s fiscal period

Your business's fiscal period is the start and the end of your business year. A fiscal period must be 12 months (usually from January 1 to December 31).

If you choose to use different dates, you will need to submit Form T1139, Reconciliation of Business Income for Tax Purposes.

Accounting methods

Most self-employed people report self-employment income using the accrual method. You can only use the cash method for some types of self employment income.

When you use the accrual method, you must:

• report income in the fiscal period you earn it, even if you haven’t received the payment yet
• deduct expenses in the fiscal period you have them, whether or not you pay them in that period

Only some types of self-employed people can report self-employment income using the cash method.

These include:

• Farmers
• Fishers
• Self-employed commission agents (a person who earns commission by selling goods belonging to others on their behalf)

Using a vehicle for your business

You can deduct some vehicle expenses if you use your vehicle to earn business income and you have records to support your claim.

For each vehicle, keep a record of:

• the total kilometres you drive
• the kilometres you drive to earn business income

For each business trip, keep a log with the following information:

• date
• destination
• purpose
• number of kilometres you drive