Many students are inspired to start their own business while they are studying at college or university in Canada. There is a huge advantage of being able to set your own hours, be your own boss and work as much as you need to.

The profits earned can be essential to cover living expenses and books. Canada even offers grants for students starting their own business. This income is taxable and needs to be declared on an annual basis, so you need to keep track of income and expenditure for your tax return. Managing your accounts efficiently is important so that you are paying the right amount of tax.

What Income Do I Pay Tax on?

You pay taxes on your net profit. This is the amount of money that you have remaining after expenses have been taken off the gross profit. The expenses must be directly in relation to your business.

For instance, if you have started a business as a taxi driver, then the expenses relating to running your car, such as fuel and car insurance, are taken off your income before tax is calculated. If you receive income from a student loan, this is not taxable. Income from bank interest from your business, however, is taxable.

What Business Expenses Can I Claim?

If you are working from home, then you can claim a portion of your home expenses. For instance, if your house has 10 rooms, and you use one of them solely for work, then you will be able to claim 10 per cent of the home expenses, such as electricity and heating.

You can claim for legal and employment fees relating to work, and any peripheral expenses, such as internet and postage. You can also claim insurance as an expense. There is a full list of claimable expenses on the Government of Canada website.

Basic Rates of Tax in Canada

The federal tax rates are liable to change on an annual basis. For 2017, it is 15% for any income earned up to $45,916. Taxes for each of the provinces are different, depending on where you live. If you are not using an accounting service, you will need to check the tax rate for your province or territory. You can use Form 428 to help you to calculate the rate of tax that you need to pay on your income.

Starting your own business whilst you are studying can bring in essential income. You will need to make sure that you are keeping accurate records of your income and expenditure, so that you can complete your tax return. You can do these accounts yourself, or employ an accounting service to help you, so that you know you are paying the right tax.

Contribution from freelance writer Lucy Wyndham.