Home office, vehicle, supplies, insurance, professional fees, etc.
Employee
Contractor
Annual Difference
-$13,150.58
Monthly Difference
-$1,095.88
Better Option
Working as a employee saves you $13,150.58 per year ($1,095.88 per month).
Common questions about working as an employee versus self-employed contractor
CRA uses several tests to determine worker status: the level of control the payer has over the worker, whether the worker provides their own tools and equipment, the degree of financial risk the worker assumes, opportunity for profit, and the intent of both parties. If CRA determines you are an employee, the payer must deduct CPP, EI, and income tax at source. Misclassification can result in penalties and back taxes for both parties.
If you incorporate but would be considered an employee if not for the corporation, CRA may classify your company as a Personal Services Business. PSBs face the full corporate tax rate (around 33%) instead of the small business rate (around 12%), and cannot deduct most expenses. To avoid PSB status, ensure you have multiple clients, control over how work is performed, and financial risk. Having more than five full-time employees also exempts you from PSB rules.
Incorporation may be beneficial if you earn significantly more than you need to live on, as retained corporate earnings are taxed at lower rates. You can also income-split with family members through dividends, and access the Lifetime Capital Gains Exemption on sale of shares. However, incorporation has costs (accounting, legal, annual filings) and complexity. Many contractors start as sole proprietors and incorporate when their net income exceeds $75,000-$100,000 annually.
Self-employed contractors can deduct business expenses that are reasonable and incurred to earn income. Common deductions include: home office expenses (proportional to space used), vehicle expenses for business travel, professional development and training, computer equipment and software, office supplies, professional memberships and insurance, accounting and legal fees, advertising and marketing, and subcontractor payments. Keep detailed records and receipts for all claims.
Self-employed individuals pay both the employee and employer portions of CPP, for a combined rate of 11.9% on net self-employment income between $3,500 and $74,600. This is roughly double what an employee pays, but you can deduct the employer-equivalent portion on your tax return. Self-employed individuals are not required to pay EI premiums, though they can opt in for special benefits (maternity/parental, sickness).
You must register for GST/HST once your revenue exceeds $30,000 over any four consecutive calendar quarters or in a single quarter. Once registered, you collect GST/HST from clients and remit it to CRA, but you can claim Input Tax Credits (ITCs) on your business expenses. Even if below the threshold, voluntary registration can be advantageous if you have significant taxable expenses.
Yes. If you work from home, you can deduct a proportional share of home expenses including rent or mortgage interest (not principal), property taxes, utilities, internet, insurance, and maintenance. Calculate the percentage based on the square footage of your workspace relative to your total home. The space must be your principal place of business or used regularly and exclusively for meeting clients. CRA also previously offered a flat-rate method of $2/day (up to $500/year).
Self-employed individuals must file their tax return by June 15th each year, though any balance owing is still due by April 30th. If you owe taxes, interest accrues from May 1st. You must report all business income and expenses on Form T2125 (Statement of Business or Professional Activities). Quarterly instalment payments may be required if your net tax owing exceeds $3,000 in the current year or either of the two preceding years.
CRA-Aligned: This calculator uses official CRA rates and thresholds for the 2025 tax year. Employee vs contractor status is determined by CRA based on the specific facts of each engagement. This tool provides estimates only and should not be used as a substitute for professional tax advice.
How independent contractors handle taxes, deductions, and CRA requirements
What makes you an independent contractor in Canada?
The CRA looks at several factors to decide if you are an employee or a contractor. Key indicators include whether you control how and when the work is done, whether you provide your own tools, whether you can hire helpers, and whether you take financial risk. If the business controls your schedule, provides equipment, and pays you a regular salary, you are likely an employee, not a contractor.
How do contractors pay income tax?
As a contractor, no tax is withheld from your payments. You must report all income on your tax return using Form T2125 (Statement of Business Activities). You may need to make quarterly instalment payments to the CRA if your net tax owing exceeds $3,000 in the current year and either of the two previous years. Instalments are due March 15, June 15, September 15, and December 15.
What about CPP contributions?
Independent contractors must pay both the employee and employer portions of CPP, for a combined rate of 11.9% on pensionable earnings between $3,500 and $71,300. On $60,000 of net self-employment income, your CPP contribution would be about $6,725. The employer half is deductible as a business expense on your tax return.
Do contractors need to register for GST/HST?
If your revenue exceeds $30,000 over four consecutive calendar quarters, you must register for a GST/HST account and charge tax on your services. Even if your revenue is below this threshold, you can voluntarily register to claim input tax credits (ITCs) on your business expenses. The GST rate is 5%, with HST rates varying by province.
What expenses can contractors deduct?
Contractors can deduct ordinary business expenses such as office supplies, software subscriptions, professional development, vehicle costs (business portion), home office expenses, accounting fees, and advertising. You can also deduct the employer portion of your CPP and any premiums for a private health plan. Keep all receipts — the CRA may ask for proof.
How does the home office deduction work?
If you use part of your home regularly and exclusively for business, you can deduct a proportionate share of rent, utilities, internet, insurance, and property tax. Calculate the percentage by dividing your office area by the total area of your home. For example, if your office is 150 sq ft in a 1,500 sq ft home, you can deduct 10% of eligible costs.
What records must contractors keep?
The CRA requires you to keep all business records for at least six years from the end of the tax year they relate to. This includes invoices, bank statements, receipts, contracts, and mileage logs. Digital records are acceptable as long as they are legible and complete. Good record-keeping protects you in case of a CRA audit.
CRA-Aligned: Based on 2025 CRA rates and thresholds. For personal advice, speak to a qualified accountant or tax professional.
Disclaimer: This calculator provides estimates based on current CRA rates and thresholds for the 2025 tax year. It does not constitute professional tax, financial, or legal advice. Your actual liability may differ depending on your individual circumstances. Always consult a qualified accountant before making financial decisions. Read our terms
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