Etsy’s fees, payment processing fees, Etsy advertisement costs and shipping costs are common business expenses for the platform’s sellers, Long says—but there are a lot of other expenses to consider as well. To decide whether something is a valid business expense, she adds, put on your “business crown” and ask yourself, “Would I be making this purchase if I weren’t trying to move my business forward?” If yes, then it’s likely not deductible from your taxable income.
What’s considered to be “deductible” is the expense related to earning the business income. Any expenses that are “mixed use,” meaning they can be used for both personal and business purposes (like a home office or car), must be pro-rated to reflect business use only.
When you’re making physical items to sell, one obvious expense is raw materials and other items that you need to create a finished product—this is a special category termed “cost of goods sold,” Long says. But there are myriad other expenses to include, like software and subscriptions (think Canva or Adobe), website hosting and email, tools, or paying people to help with your social media or bookkeeping. These costs are related to doing business and earning revenue, and you want to make sure you’re tracking them in categories and keeping the receipts in an easily retrievable manner, so that you can claim them at tax time and be audit-proof, too. (Does your small business or side hustle need insurance?)
Also be aware that there are two types of expenses. Current expenses are deductible as described above. But if you purchase an asset with a useful life of more than one year—such as furniture, a car or machinery—a full tax write-off is not possible. Rather, a percentage of the value of the asset will be claimed as a deduction known as Capital Cost Allowance (CCA), which allows for wear and tear over time. Claiming the full costs in the year the item is purchased is a mistake taxpayers often make.
Pay your taxes
If you have a “day job,” your employer usually deducts income tax and Canada Pension Plan (CPP) and Employment Insurance (EI) contributions and submits them to the Canada Revenue Agency (CRA) on your behalf. When you’re self-employed, though, that task falls to you. Notably, both the employer’s and employee’s portion of the CPP must be remitted when you file your return, together with the taxes.
Self-employed individuals get an extension on filing their taxes—they’re not due until June 15. (For 2024, it’s June 17, as June 15 is a Saturday.) However, any amount owing was due by April 30. “You might incur a bit of interest if you wait till the June 15 deadline to pay,” Long says.
While the amount of income tax you’ll have to pay depends on your overall financial situation for the year, a good guide is to put aside about 20% to 30% of your net business income to hand over to the CRA at tax time, especially because of the CPP obligation. Newer and smaller businesses generally have to submit this amount annually with their return, but in a lot of cases—especially if your income is higher—you might need to make payments throughout the year as well. You can check your CRA My Business account or call the CRA helpline (1-800-959-8281) to find out if this applies to you. Tax-filing software can also compute this for you.
Does Etsy submit your sales taxes?
Like many things in Canada, sales tax gets complicated when you (or your products) cross provincial borders. There are rules on how much to charge customers and rules on whether you need to charge them at all—plus there’s the matter of how Etsy handles sales tax. Let’s break things down one by one.
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