Self-Employed Accountant Cost in Canada: T2125 and What to Bring

How much is an accountant for a self-employed return in Canada?

The CRA publishes no fee schedule for tax preparers; its page on using a preparer says only that a preparer files your return for a fee. A quote follows the work your year creates. The T2125 (Statement of Business or Professional Activities) is filed with your personal return, so you are pricing that return with the T2125 inside it, plus any GST/HST returns or bookkeeping you add.

A year is simple when there is one business, every dollar of income is on a record, expenses are few and backed by receipts, and there is no GST/HST account, vehicle, equipment or rental income. A year is not simple when it includes unfiled years, a GST/HST account or a registration you missed, a CRA letter, or records you cannot assemble. Those cases are hard to price before anyone has seen the records, because the cost is the rebuild.

Bring your last notice of assessment (the CRA's reply to your last return), slips, bank statements, invoices, receipts, a vehicle logbook and home costs; the full list is further down.

Part of the fee can itself be a business cost. The CRA's guide to line 8860 lists fees for external professional advice, for help keeping your records and for preparing and filing your income tax and GST/HST returns as deductible professional fees. Ask the preparer how an invoice splits between the business and your personal return.

What makes the fee higher for a self-employed return?

Each item below adds a calculation, a record to check or a second filing to the T2125. A year with none of them is the lightest case.

What should a quote for a self-employed return say?

A quote should say which filings and which state of records it assumes. Ask:

• Which returns it covers: your personal return with its T2125, any GST/HST returns, and a spouse's or partner's return.
• Whether it assumes finished books, or slips and bank statements only.
• Whether the fee is fixed for a written list of work or hourly, and how extra work is charged: missing records, unfiled years, a CRA letter.
• Which fee drivers it assumes you have, such as a vehicle, equipment or a rental.

Finding and checking an accountant is covered in choosing an accountant in Canada.

What do I need to give the accountant for the T2125?

Bring proof of income, proof of each expense, and the records behind anything claimed over several years. The CRA says you are required by law to keep records of all your transactions that support your income and expense claims, and to keep them for a minimum of six years from the end of the last tax year they relate to (business records). If a return is filed late, the period runs from the filing date instead (Income Tax Act, section 230), so keep the records for any year not yet filed.

• Last notice of assessment and last year's return, T2125 included, if the business is not new. The equipment balances used for capital cost allowance start from last year's closing balance.
• All slips: T4A (box 048 fees for services, box 020 self-employed commissions), T5 and any other slip on the personal return.
• Income records: invoices, deposit records and payment-platform statements, showing the date, amount and source of each receipt. Cash, e-transfers and deposits to a personal account count too.
• Unpaid customer invoices and supplier bills at year-end. Most self-employed businesses report income when earned and deduct expenses when incurred, even when payment comes later.
• Bank and card statements for every account used for the business.
• A receipt for each expense, with what it was for. The CRA says to always get receipts or other vouchers when you buy something for the business.
• A vehicle logbook with the trip details and odometer readings above.
• Home costs for the year and the size of the workspace compared with the home.
• Inventory, if you sell products: the year-end stock count or inventory record.
• Equipment bought or sold: the date and cost of each item.
• GST/HST: the account number, the returns filed and any CRA letter about the account.

Giving the accountant access to your CRA account is covered in when you need a tax accountant. How to compile these records and split mixed-use costs is covered in what to give your accountant as a sole proprietor.

Can I do my own T2125, and when is that enough?

Yes. The CRA's guide tells you to fill in a separate T2125 for each business and file it with your return. Doing it yourself may be enough when all of these hold:

• You have one business and all income is on a record.
• Expenses are few, each with a receipt.
• There is no GST/HST account, vehicle claim, home-office claim, equipment or rental income.
• Every earlier year is filed.

Each condition that stops holding adds the matching fee driver from the table above. Choosing between filing yourself and hiring help, and the filing deadlines, are covered in when you need a tax accountant.

Can an accountant find more write-offs if I have few business expenses?

An accountant can check that each cost you really had is claimed on the right line and in the right amount. An accountant cannot add a cost you did not have. Under the Income Tax Act, an expense is deductible only to the extent it was incurred to earn income from the business; personal or living expenses are not deductible; and the cost of capital property is not deducted as an ordinary expense but through capital cost allowance.

Costs that may belong on the T2125, if they were incurred for the business and you have a record, include capital cost allowance on equipment bought in earlier years, the business share of a vehicle or, when the CRA's workspace conditions are met, of a home, and the business part of the accountant's own fee. Limits apply to some costs, such as meals and motor vehicles.

If business costs went through a personal account and were never tracked, the statements may show some of them. A claim still needs a record and a business reason. Some deductions and credits sit on the personal return, not the T2125, and are a separate question. Which costs the CRA accepts is covered in business expenses the CRA accepts, and the home-office share in business use of home for self-employed.

Does GST/HST registration change the work and the fee?

Yes. A registered business files a GST/HST return for each reporting period, including a period with no sales, and the income on the T2125 should be consistent with the sales on those returns. How to file is covered in filing GST/HST and input tax credits. The way you work out the GST/HST you remit, such as the quick method (a simplified calculation), also changes how the T2125 income is worked out. The quick method is an election the registrant makes in My Business Account or on Form GST74, open only while revenues, with associates, stay within $400,000; an annual filer elects by the first day of the second fiscal quarter, and a monthly or quarterly filer by the due date of the first Quick Method return.

Registration is generally required once worldwide taxable sales pass $30,000 in a single calendar quarter or over four consecutive calendar quarters; below that limit you are a small supplier and registering is optional, except that taxi and commercial ride-sharing drivers must register even as small suppliers.

After one quarter over the limit, you must charge GST/HST from the sale that took you past it; after four quarters, you stop being a small supplier at the end of the month after the quarter you passed it. You have 29 days from your effective date of registration to register, so a late registration can leave GST/HST to account for on sales made since that date. Whether and when to register is covered in when to register for GST/HST.

This page covers the federal GST/HST; in Quebec, Revenu Québec administers the GST/HST. The CRA administers individual income tax for every province except Quebec, so a Quebec resident's provincial return is a separate question, covered in when you need a tax accountant. Provincial sales taxes are outside this page.

What if I have several years not filed, or my records are incomplete?

Each unfiled year needs its own return and its own T2125, so the cost is mostly the work of rebuilding income and expenses year by year. The CRA says that if you do not keep the necessary information and have no other proof, it may have to determine your income by other methods, and that penalties apply for inadequate records.

A late return also costs more. A self-employed person's return is due June 15, but any balance owing is due April 30, and paying later adds interest. Section 162 of the Income Tax Act sets the late-filing penalty at 5% of the tax unpaid when the return was due, plus 1% of that tax for each complete month late, up to 12 months. Higher rates can apply after a CRA demand for a return and an earlier late-filing penalty; see penalties, interest and relief.

Start from what exists: bank and card statements, invoices, platform statements and slips. Catching up on missing returns is covered in catching up on unfiled returns, and books that are behind in catching up on overdue books.

What if my income arrives on T4A slips or I also have rental income?

Both still belong on the return, and each adds work. For a T4A, the CRA says to enter the amount in box 048 on the applicable self-employment line of your return, and the T2125 is the form that reports business income and expenses. You must report all your income, with or without a slip.

A slip can be lower than your invoices because payers must leave GST/HST and PST out of box 048. It can also be missing or wrong. How a T4A fits on the T2125 is covered in the fees-for-services slip on your business statement.

Rental income is generally reported on Form T776, not the T2125. The CRA's Form T776 is the form rental property owners use to report rental income and expenses, so it is a second statement to prepare. If you also provide services to tenants, such as cleaning, security or meals, the CRA says you may be carrying on a business, reported on the T2125. See rental income.

Example

These scenarios use Canadian dollars. They show how the work changes; they are not fee quotes.

A freelancer with two T4A clients

A Toronto freelancer starts her first business in January and bills C$25,000 to two clients, who each send a T4A. She has no associates or other business sales, has never registered for GST/HST and works from a spare room. Her sales stay below the small-supplier limit, so registration is optional. The year needs slips matched to invoices and a home-office calculation. There is no vehicle, equipment or GST/HST return, so a quote follows the records and the home-office schedule.

A contractor with a vehicle and equipment

A BC contractor has C$120,000 of sales, is registered for GST, drives to job sites and bought C$8,000 of equipment. The work now includes a vehicle logbook, capital cost allowance on the equipment and GST returns that must agree with the T2125. British Columbia's PST is separate and outside this page.

A designer with three years not filed

A Calgary designer has not filed for three years and kept no books. Each year had about C$30,000 of income.

1. Year one: about C$30,000 of income is rebuilt from bank statements and invoices, then expenses are sorted, then one T2125 and return are prepared.
2. Year two: the same rebuild, with its own T2125 and return.
3. Year three: the same again. The late-filing penalty is figured separately for each year on any tax unpaid for that year.

The bill is mostly the rebuild, not the return. At about C$30,000 a year, whether GST/HST registration was ever due also needs checking.

Different for you?

• You have years not filed: use catching up on unfiled returns and get individual tax help.
• Your books are behind or your records cannot be assembled: see catching up on overdue books and get bookkeeping help.
• A CRA letter arrived: see reviews, audits and voluntary disclosure or penalties, interest and relief, and get individual tax help.
• You may have passed the GST/HST limit without registering: read when to register for GST/HST and get individual tax help.
• Your clients are in the US: see the Canadian freelancer guide and get cross-border tax help.
• You moved to Canada recently or have money or property outside Canada: see first year as a Canadian tax resident and get cross-border tax help.
• Your income runs through a corporation: see what a T2 costs and get corporate tax help.
• You want to know how the income is taxed and when to pay: see how self-employed income is taxed.