Self-Employed Status in Quebec: What It Really Involves
Self-Employed vs. Employee: Key Tax Differences
A self-employed worker is not considered an employee. They are responsible for their own business, even if they work alone. Unlike employees, no source deductions are automatically withheld from their income. This means that taxes, contributions, and remittances must be managed and set aside by the self-employed worker themselves.
This fundamental difference brings a series of additional responsibilities. While an employee receives a clear tax slip at year-end, a self-employed worker must personally reconstruct all of their income, expenses, and tax obligations. A poor understanding of this distinction can quickly lead to costly mistakes.
Legal and Tax Obligations Not to Overlook
A self-employed worker must file a more complex income tax return, report business income, keep supporting documentation, and comply with tax rules specific to their industry. They must also determine whether they need to register for tax files, file periodic returns, and remit collected amounts within the required deadlines.
These obligations are not optional. An omission, delay, or error can result in penalties, interest, and sometimes even stressful tax audits. These rules are clearly outlined by Revenu Québec, which details the tax responsibilities specific to self-employed workers, particularly regarding registration, filings, and tax remittances, in its official guide for self-employed workers.
Accounting Responsibilities of a Self-Employed Worker
Bookkeeping and Income Tracking
Bookkeeping is the foundation of sound financial management. In fact, many self-employed workers eventually choose to delegate their bookkeeping to an external service to save time and avoid errors. For a self-employed worker, this means recording every source of income, whether from a one-time client or a recurring contract. Without a clear system, it quickly becomes difficult to know how much is truly being earned.
Inadequate tracking can also distort perceptions of profitability. Many self-employed workers believe they are earning a good living, without realizing that certain expenses or tax obligations significantly reduce their actual profits.
Expense Management and Supporting Documents
Business expenses must be properly identified, categorized, and documented. Not all expenses are deductible in the same way, and specific rules must be followed to avoid disallowances in the event of a tax review.
Keeping receipts, understanding personal versus business use, and applying the correct accounting categories require rigour and consistency. Without proper support, these tasks often become a source of errors.
GST, QST, and Other Tax Obligations
Registering for taxes and managing GST and QST represent a major challenge for many self-employed workers. Knowing when to register, how to invoice correctly, and when to remit collected amounts is not always straightforward.
Poor tax management can result in significant amounts owing at year-end, sometimes without the funds having been properly set aside.
