Income Tax for Yoga Instructors
Introduction
To become a yoga instructor, you most certainly spent a lot of your time, energy and not to mention your hard-earned “cash” for yoga instructor training. You completed the training, and you earned respect and experience to become a professional yoga instructor. As a result, you are now making money as a yoga instructor at one or multiple yoga studios. So the question is, how does a yoga instructor report their earnings on their personal tax return?
Types of Income
Depending on the terms of your contract between you and your Yoga studio, the tax can be simple or complex. If you are a regular employee, which means that you report for your assigned hours and the employers write you a cheque every pay period, this is the simple method.
If you are not a regular employee who usually means that you invoice your yoga studio for your activities, then the tax reporting is more complicated.
See below for more information.
T4 – regular employment income – Simple
If you are an employee, you will receive a T4 slip in February or March of the respective tax year. This is relatively simple, you must enter this on your tax return, and you get very few tax deductions from this employment income.
T2125 – Statement of Professional Activities – Complex
However, if you are an independent contractor who can work at different studios or you provide the Yoga studio with an invoice for your yoga teaching efforts and activities, then you will not receive a T4, and the onus is on the yoga instructor to report the income on the T2125.
The question now becomes, how does a Yoga instructor file this information? But first, you must know what information goes on this arcane T2125 form! So, let me explain below in the following groups: income and expenses and lastly, net income.
Income
The income is essentially the sum of all amounts in which you invoiced for the calendar year. The easiest way to do this is in a spreadsheet; you enter each invoice amount in a row and sum the amount column. This will give your total income for the year, and you can enter it on Part I line A on the T2125 form.
HST Consideration
If your invoices total more than $30,000 in a given quarter in a calendar year, you will go beyond the small supplier threshold and will have to collect and remit HST. Please see this link for more information.
HST is a complex matter, and you should seek help contact me or Canada Revenue Agency(CRA), as CRA does have a lot of support in this regard if you call their hotlines.
Expenses
To get the expense amounts, you must add all your expenditures for the year. This is simple enough. Just add all the receipts up for the calendar year, and the expenditure totals are entered into Part 5 of the T2125.
Background
In general, a person can deduct any expenses that enable him or her to earn income. The expenditures given below are examples and are therefore not limited to those examples.
Automotive
The common type of expense for Yoga instructors would be automotive expenditures such as gas, insurance, license, repairs and maintenance. Essentially, you need your vehicle to travel for your yoga class.
Telephone
Telephone and Cellphone costs as you need to be in contact with the yoga studio.
Computer Expenses
A portion of your computer expenses such as software (Excel / Word), Internet costs, these are most likely eligible as you need to type up invoices and perhaps coordinate yoga schedules online.
If you purchase music for your class through iTunes these are deductible. However, there could be a grey area between personal and business expenses here, so I would only suggest you use a portion of your total iTunes cost for the year, such as 20% business expense and the other 80% for personal use.
Yoga Items
There are opportunities to deduct yoga-related items such as bells, blocks, straps, mats, and candles that you would use in the class. Remember, this list is not limited. You may have other things that you use during your yoga class, which you may be entitled to deduct.
Clothing
Uniforms and clothing are a very grey area because it blurs the distinction between personal and business use. I would recommend not deducting any clothing that could be identified as personal. So, unfortunately, those nice lululemon pants will have to go undeducted.
Membership dues, Training Dues, and other Travel
The yoga instructor training dues are deductible in the year they are paid, even if you have not earned income yet. Generally, the yoga instructor training programs will not issue a tuition tax form (T2202a) to claim as a tuition tax credit. As a result, this can be deducted as an expense under this expense category.
If you do some training or subscribe to a yoga teaching membership those are considered deductible if they help you continue to earn Yoga instruction income. The travel expenses incurred to attend the yoga training programs can also be deducted; however, there is a catch, if a program is closer that is similar in nature to the course you are attending you cannot deduct those expenses. For instance, if you were to go to Hawaii for a generic yoga training program, you cannot deduct the cost of travel and accommodation as there are generic yoga training programs in Canada. So, unfortunately the travel costs to Hawaii would be unreasonable and likely denied. But if it is a unique course that cannot be found any where closer then you are able to deduct the travel costs.
Net income or loss
After deducting your expenses from your net income hopefully, you’ll have earned some income. But if you have more expenses than income, then you’ll have a loss. The losses can be applied against other income or carried backed three years against previously reported income, and this will result in a refund. If there no previously reported income, the loss can be carried forward for 20 years.
In general, given that a yoga instructor does not have significant expenses, it is likely that you will not incur a loss.
The net income is the amount that will be subject to tax and Canada Pension Plan(CPP).
The tax rate will depend on many factors, such as other income you have or non-refundable tax credits, which is beyond the scope of this article.
Canada Pension Plan
The Canada Pension Plan(CPP) is a large expense when completing your tax return because as a self-employed yoga instructor you will be remitting your portion of the CPP and remitting the employer portion.
Note, the employer portion is deductible.
Conclusion
In short, the tax reporting for self-employment yoga instructors is complex and you may need assistance. If you need help please feel free to ask questions in the comments.
Updates
Updates on January 12, 2020 Modified GST/HST Registration Hyperlink. Modified description of Training to include more details on yoga instructor training fees Modified CPP section because the rates have changed.