Self-Employment Taxes in Canada: Complete Guide (2024)

How Self-Employment Income is Taxed

Self-employment income is taxed the same as employment income—using Canada's progressive tax brackets. However, as a self-employed individual, you're responsible for:

• Both portions of CPP: Employee AND employer portions (11.9% total in 2024)
• Collecting and remitting GST/HST: If revenue exceeds $30,000
• Paying tax instalments: Quarterly prepayments to CRA
• Tracking all expenses: For deductions

CPP Contributions for Self-Employed

Employees split CPP contributions with their employer (5.95% each). Self-employed individuals pay both portions:

The good news: Half of your CPP contribution (the "employer" portion) is tax-deductible.

GST/HST Registration

When Must You Register?

You must register for GST/HST if your worldwide taxable revenue exceeds $30,000 in any single calendar quarter or over 4 consecutive quarters.

Should You Register Voluntarily?

Even if below $30,000, registering may benefit you if:

• You have significant business expenses (claim Input Tax Credits)
• Your clients are businesses (they can claim back the GST/HST)
• You want to appear more professional/established

Quick Method of Accounting

If eligible, the Quick Method simplifies GST/HST remittance. Instead of tracking all GST/HST paid and collected, you remit a fixed percentage of revenue (varies by province and business type). Often results in keeping some GST/HST as profit.

Common Business Deductions

Self-employed individuals can deduct reasonable business expenses:

Home Office (Use of Home)

• Portion of rent/mortgage interest, utilities, insurance, property tax
• Based on square footage of office vs. total home
• Must be your principal place of business OR used regularly for meeting clients
• Cannot create or increase a business loss

Vehicle Expenses

• Gas, insurance, maintenance, lease payments or depreciation
• Must keep a mileage log documenting business vs. personal use
• Claim only the business-use percentage

Other Common Deductions

• Professional fees: Accountant, lawyer, consultants
• Office supplies: Computer, software, phone, internet
• Advertising: Website, business cards, ads
• Travel: Business trips, conferences
• Meals & entertainment: 50% deductible when business-related
• Professional development: Courses, books, subscriptions
• Insurance: Business liability, E&O insurance
• Bank fees: Business account fees, credit card processing

Tax Instalments

If you owe more than $3,000 in federal tax (or $1,800 in Quebec), CRA requires quarterly instalment payments:

• Due dates: March 15, June 15, September 15, December 15
• Amount: CRA sends instalment reminders, or calculate yourself
• Interest: Charged on late or insufficient instalments

Filing Your Return

Self-employed individuals report business income on form T2125 (Statement of Business Activities), filed with your T1 personal tax return.

Key Deadlines

• Filing deadline: June 15 (but any tax owing is still due April 30!)
• GST/HST annual return: 3 months after fiscal year-end

Records to Keep

Keep all business records for 6 years:

• All invoices issued and received
• Bank and credit card statements
• Receipts for all expenses
• Vehicle mileage log
• Home office calculation

RRSP Considerations

Your RRSP contribution room is based on earned income, which includes self-employment income (net of expenses). Contributing to an RRSP:

• Reduces your taxable income
• Provides retirement savings
• Is often the best way for self-employed to reduce taxes

Incorporation: Should You?

Operating as a corporation involves more complexity and cost, but may benefit you if:

• Net income exceeds ~$80,000-100,000/year
• You don't need all your income personally
• You want liability protection
• You want to income split with family members

Consult an accountant before incorporating—it's not always beneficial.

Key Takeaways

• Self-employed pay both portions of CPP (11.9%)
• Register for GST/HST once revenue exceeds $30,000
• Track all expenses meticulously for deductions
• Pay quarterly instalments to avoid interest charges
• Set aside 25-30% of income for taxes
• Filing deadline is June 15, but payment is due April 30