Self-employed Canadians report business income on form T2125 and pay income tax at the same rates as employees, but they also pay both halves of CPP, charge GST/HST once they pass $30,000, and usually pay tax in quarterly instalments. This guide covers all of it for 2026.
Business income and expenses
You report gross business income and deduct reasonable expenses incurred to earn it. The result, net business income, is added to any other income on your return. Most sole proprietors use a December 31 year-end.
Income tax on self-employment income
Net business income is taxed at the normal federal (14% to 33%) and provincial rates. Unlike employees, you don’t get the Canada employment amount, and no tax is withheld during the year.
CPP for the self-employed
You pay both the employee and employer contributions: 11.9% of net self-employment earnings between $3,500 and $74,600 (maximum $8,460.90 in 2026) plus 8% CPP2 on earnings from $74,600 to $85,000 (maximum $832). The “employer” half and the enhanced part of the “employee” half are deductible, and the base employee half earns a non-refundable credit. In Quebec you pay QPP at 12.6% plus QPIP at 0.764%.
EI is optional
Self-employed people don’t pay regular EI premiums and can’t claim regular EI. You can opt in to the EI special benefits program (maternity, parental, sickness and caregiving benefits) by registering with Service Canada. You then pay the employee rate on your self-employment earnings.
Worked example
An Ontario consultant bills $110,000 and has $10,000 of expenses:
| Amount | |
|---|---|
| Income (revenue) | $110,000 |
| Business expenses | $10,000 |
| Profit | $100,000 |
| Federal income tax | $12,716 |
| Ontario income tax | $5,579 |
| Ontario Health Premium | $750 |
| CPP (both shares) | $8,461 |
| CPP2 (both shares) | $832 |
| Take-home pay | $71,662 |
| Total tax | $28,338 |
| Set aside each quarter | $7,084 |
To match this as an employee in Ontario they’d need a salary of about $96,347, and an employee would also get benefits and paid vacation.
Self-employed vs employee take-home (Ontario)
| Income | Self-employed keeps | Employee keeps |
|---|---|---|
| $40,000 | $31,435 | $32,814 |
| $60,000 | $45,397 | $47,340 |
| $80,000 | $57,874 | $60,303 |
| $100,000 | $71,662 | $74,206 |
| $150,000 | $102,358 | $104,320 |
The self-employed usually keep slightly less on the same figure because of the extra CPP, although they pay no EI.
GST/HST
Once your taxable revenues exceed $30,000 over four consecutive calendar quarters, you must register and charge GST (5%) or HST (13%–15% depending on province). You claim input tax credits for GST/HST paid on business expenses. Many small businesses use the Quick Method to simplify remittances.
Instalments and deadlines
| Date | What’s due |
|---|---|
| March 15, June 15, Sept 15, Dec 15 | Quarterly instalments (if required) |
| April 30 | Balance of tax owing for the previous year |
| June 15 | Return filing deadline for self-employed individuals |
You’re required to pay instalments if your net tax owing exceeds $3,000 ($1,800 in Quebec) in the current year and either of the two previous years. The CRA sends reminders with suggested amounts.
Common deductions
- Business-use-of-home expenses (a share of rent, utilities, insurance, maintenance)
- Vehicle expenses for business kilometres, with a logbook
- Equipment and computers (through capital cost allowance)
- Software, phone and internet, office supplies
- Professional fees, insurance, advertising and memberships
- Meals and entertainment (generally 50%)
Should you incorporate?
A Canadian-controlled private corporation pays the low small business rate on active business income and lets you leave profit in the company to be taxed later as salary or dividends. It can save significant tax once your income exceeds what you need to live on, but adds legal and accounting costs. Get advice from an accountant before you incorporate.
Take-home at different incomes and provinces
| Profit | Ontario | British Columbia | Alberta | Quebec |
|---|---|---|---|---|
| $40,000 | $31,435 | $31,863 | $31,937 | $30,361 |
| $70,000 | $51,702 | $52,200 | $52,023 | $48,559 |
| $100,000 | $71,662 | $72,730 | $71,895 | $66,585 |
| $150,000 | $102,358 | $105,314 | $105,150 | $95,340 |
Is paying both halves of CPP worth it?
CPP is not optional for the self-employed, but it isn’t lost money: your contributions buy the same inflation-indexed lifetime pension an employee would get, and the enhanced CPP now replaces a larger share of earnings. If you incorporate and pay yourself dividends instead of salary, you stop contributing, which saves tax now but reduces your future pension.
Home office example
If your office takes 10% of your home’s floor area and is your principal place of business, you can claim 10% of rent (or mortgage interest, not principal), heating, electricity, insurance and maintenance. Home office expenses can’t create or increase a business loss, but any excess carries forward to the next year.
Records and bookkeeping
Keep receipts and records for six years from the end of the tax year they relate to. A separate bank account, a simple monthly bookkeeping routine and a vehicle logbook will save hours at tax time and protect you in a review.
First-year checklist
- Choose a business name and register it provincially if it isn’t your own name.
- Open a separate bank account and a tax savings account.
- Track revenue toward the $30,000 GST/HST threshold.
- Save 25–35% of profit for income tax and CPP, and expect instalment reminders in year two.
- Consider RRSP contributions to lower your first big tax bill.
A year in the life: quarter by quarter
Take an Ontario freelancer with $100,000 of profit in 2026, which works out to about $7,084 of tax and CPP per quarter:
| Quarter | What to do |
|---|---|
| Jan – Mar | Move $7,084 into the tax account. File and pay last year’s balance by April 30. Contribute to your RRSP by the 60-day deadline. |
| Apr – Jun | Set aside $7,084. File your return by June 15. If the CRA sent instalment reminders, pay by March 15 and June 15. |
| Jul – Sep | Set aside $7,084. Pay the September 15 instalment. Check whether revenue is approaching $30,000 for GST/HST. |
| Oct – Dec | Set aside $7,084. Pay the December 15 instalment. Buy needed equipment before December 31 to claim it this year. |
Expenses you can’t deduct
- Personal living expenses, clothing (other than protective gear or costumes) and commuting from home to a regular workplace
- The principal portion of mortgage payments (only interest is deductible, and only the business-use share)
- Fines and penalties, and 50% of most meals and entertainment
- Your own salary as a sole proprietor: what you take out is drawings, not an expense
Self-employed in Quebec
Quebec freelancers pay QPP at 12.6% (both shares) instead of CPP, QPIP premiums at the self-employed rate (0.764% in 2026), and Quebec income tax on a separate provincial return. The federal 16.5% abatement still applies. QST (9.975%) is registered and charged alongside GST once you pass the $30,000 threshold.
Frequently asked questions
How much should I set aside for taxes as a freelancer in Canada?
Usually 25–35% of profit including CPP. The calculator shows your exact quarterly amount.
Do I need a business number?
Only if you register for GST/HST, payroll or import/export. Sole proprietors below $30,000 can operate under their SIN.
Can I claim home office expenses as self-employed?
Yes, if it’s your principal place of business or used regularly to meet clients.
