More Canadians than ever are working for themselves. Whether you are a freelance writer, a web developer, a personal trainer, a consultant, or a trades worker doing contract jobs, self-employment comes with a lot of freedom — and a lot of tax responsibilities that nobody teaches you about until it is too late.
When you work for an employer, taxes are automatically deducted from your pay. When you work for yourself, nobody takes anything off. The money lands in your account looking like a lot more than it really is, and then tax time arrives and you realise you owe thousands. This guide will help you avoid that shock.
How Self-Employment Income Is Taxed
Self-employment income is taxed the same way as employment income — it goes through the same federal and provincial tax brackets. The difference is that you report your net self-employment income (revenue minus expenses) on your T1 tax return using Form T2125.
So if you earned $90,000 in freelance revenue and had $20,000 in legitimate business expenses, your net self-employment income is $70,000. That $70,000 is what gets taxed, not the $90,000.
This is why keeping track of your expenses is so important. Every legitimate expense you claim directly reduces the amount of tax you pay. We will cover deductible expenses in detail below.
Use our self-employed tax calculator to see a complete breakdown of what you would owe on your freelance income.
CPP Contributions: The Double Hit
Here is the part that surprises most new freelancers. When you are self-employed, you pay both the employee and employer shares of CPP contributions. That is a combined rate of 11.9% on net self-employment income between $3,500 and $71,300 (the 2025 first earnings ceiling).
On $70,000 of net income, your CPP1 contributions would be approximately $7,923 ($66,500 x 11.9%). That is a big number, and it is on top of income tax. If your net income exceeds $71,300, you also pay CPP2 at 8% (combined employee and employer) on earnings up to $81,200.
The silver lining is that the employer-equivalent portion of your CPP contributions is deductible on your tax return, which reduces your taxable income. And all of it goes towards your eventual CPP retirement pension.
Our self-employed CPP calculator works out your exact contributions based on your net income.
Do You Need to Charge GST/HST?
If your total revenue from taxable supplies exceeds $30,000 in any four consecutive calendar quarters, you must register for a GST/HST number and start charging tax on your services. Once you register, you collect GST/HST from your clients and remit it to the CRA, minus any input tax credits (ITCs) for the GST/HST you paid on business purchases.
The rate depends on your province. In Ontario, you charge 13% HST. In Alberta, it is 5% GST. In British Columbia, it is 5% GST (plus the provincial PST in some cases, though PST is not part of the HST system).
Even if you are under $30,000, you can register voluntarily. This makes sense if you have significant expenses, because you can claim back the GST/HST you pay on those expenses. Our HST registration calculator can help you decide whether it is worth it.
If you are registered, our GST/HST filing calculator helps you figure out how much to remit each period.
What Expenses Can You Deduct?
This is where freelancing has a genuine advantage. You can deduct any expense that was incurred to earn business income, as long as it is reasonable. Common deductions include:
- Office supplies — paper, printer ink, stationery, postage
- Software and subscriptions — Adobe Creative Suite, project management tools, accounting software, cloud storage
- Professional development — courses, books, conferences, certifications related to your work
- Marketing and advertising — website hosting, domain names, social media ads, business cards
- Professional fees — accountant, lawyer, bookkeeper
- Insurance — liability insurance, errors and omissions insurance
- Vehicle expenses — if you use your car for business, you can claim the business-use portion of gas, insurance, maintenance, parking, and depreciation. Our vehicle expenses calculator helps you calculate this.
- Home office — if you work from a dedicated space at home, you can claim a portion of rent or mortgage interest, utilities, property tax, insurance, and internet. Our home office deduction calculator makes this easy.
- Meals and entertainment — business meals are 50% deductible
- Capital cost allowance (CCA) — depreciation on equipment like computers, cameras, and furniture. Our capital cost allowance calculator helps you figure out the annual deduction.
Our business deductions calculator shows you how all these expenses add up to reduce your tax bill.
Setting Your Freelance Rate
One of the biggest mistakes new freelancers make is setting their rate based on what they used to earn as an employee. But as a freelancer, you need to cover your own CPP (both halves), you do not get paid vacation or sick days, you do not have employer-provided benefits, and you have business expenses that eat into your revenue.
As a rough rule of thumb, your freelance hourly rate should be at least 30-50% higher than what you would earn in an equivalent employed position. If you earned $40 per hour as an employee, you should be charging at least $52-60 per hour as a freelancer to end up in a similar position after taxes and expenses.
Our freelancer rate calculator helps you figure out exactly what to charge based on your target income and expected expenses.
Sole Proprietor vs. Incorporating
Most freelancers start as sole proprietors, which means you report business income on your personal tax return. It is simple, cheap, and works perfectly well when you are starting out.
As your income grows, you might wonder whether incorporating makes sense. A corporation pays a lower tax rate on the first $500,000 of active business income — around 12-15% depending on your province, compared to personal rates that can exceed 50%.
But incorporating comes with costs: legal fees to set up the corporation, annual filing requirements, corporate tax returns, and accounting fees. It also adds complexity to how you pay yourself (salary vs. dividends).
Generally, incorporating starts to make sense when your net self-employment income consistently exceeds $80,000-$100,000 and you do not need to draw out all the income for personal expenses. Our sole proprietor vs corporation calculator and dividend vs salary calculator can help you compare the options.
Filing Deadlines and Instalments
Self-employed individuals (and their spouses) have until June 15th to file their tax return, but any tax owed is still due by April 30th. If you miss the April 30th payment deadline, the CRA charges interest even if you have not filed yet.
If your net tax owing exceeds $3,000 for the current year or either of the two preceding years, the CRA may require you to make quarterly instalment payments. These are due on March 15, June 15, September 15, and December 15. Failing to pay instalments can result in interest charges.
The simplest approach is to set aside 25-30% of every payment you receive into a separate savings account for taxes. This way, you are never caught short when the bill arrives.
Record Keeping
The CRA requires you to keep business records for at least six years after the tax year they relate to. You need to be able to support every income amount and expense deduction you claim. This includes:
- Invoices you sent to clients
- Receipts for all business purchases
- Bank and credit card statements
- Vehicle mileage log (if claiming vehicle expenses)
- Home office measurements and utility bills (if claiming home office)
Most accounting software like QuickBooks, Wave, or FreshBooks makes this easy. Even a well-organised spreadsheet with scanned receipts works fine for simpler operations.
The Bottom Line
Self-employment in Canada comes with extra tax responsibilities, but it also comes with extra deductions and flexibility that employees do not have. The key is to understand what you owe, track your expenses carefully, and set aside money for taxes throughout the year so there are no surprises.
Start with our self-employed tax calculator to get a clear picture of your obligations, and use our profit projection calculator to plan your finances for the year ahead.