If you’re self-employed in Canada — meaning you earn income from a sole proprietorship or partnership — you’re responsible for tracking your income and expenses and paying your taxes every year to the Canada Revenue Agency.
Self-employed taxes are a bit more complicated than traditional income taxes, so be sure you understand what to expect before this year’s tax filing deadline.
Are you considered self-employed for tax purposes?
The Canadian government considers you to be a self-employed individual if you fall under any of these categories:
- You carry on a trade, profession, or own a small business as a sole proprietor or individual contractor.
- You are a member of a partnership that carries on a trade or business.
- You are otherwise in business for yourself (including part-time and freelancing).
- You participate in the platform economy, which includes economic and societal activities, sometimes called side hustles, facilitated by the use of technology such as the internet and mobile applications.
Types of self-employed taxes
If you’re self-employed, you may be responsible for paying the following:
- Federal income tax.
- Provincial income tax.
- Canada Pension Plan (CPP) contributions.
- Employment insurance contributions if you opt into the program.
- Goods and services tax, harmonized sales tax and /or provincial sales tax if applicable.
You must report your entire income on your tax return or face penalties. Remember, filing your taxes is also the only way to be considered for government benefits such as provincial or territorial tax credits, the GST/HST tax credit, and the Canada Child Benefit.
Nerd tip: It’s recommended that, as a self-employed individual, you save 25%-30% of your annual income for tax purposes.
How to calculate self-employed taxes
Canada has a graduated income tax system, so your tax rate depends on how much you earn each year. You won’t know the exact amount of tax owed until you prepare your tax return and take into account all expenses and deductions. But you can make an estimate based on federal tax rates and income tax brackets that change every year.
Note: Provincial tax rates vary based on the province or territory in which you live.
Federal tax rates for 2023
|2023 Federal income tax bracket
|2023 Federal income tax rate
|$53,359 or less
|$53,359 up to $106,717
|$106,717 up to $165,430
|$165,430 up to $235,675
|$235,675 and above
Most working Canadians over the age of 18 (outside of those in Quebec, which has its own pension plan) must contribute to the Canada Pension Plan if their net income and/or pensionable employment income is more than $3,500.
Generally, Canadians pay half of the CPP and their employers cover the rest. However, self-employed individuals are responsible for contributing the entire amount themselves.
CPP contribution rates change every year. For 2023, the self-employed CPP rate is 11.9% of your total income, up to a maximum of $7,508.90. In 2024, the maximum self-employed CPP contribution will increase to $7,735.
If you earn more than $30,000 during any three consecutive months or four consecutive calendar quarters you lose your “small supplier” status. This means you must register for a goods and service tax/harmonized sales tax number and begin charging, collecting and paying GST/HST.
At this point, you may also be eligible to claim an GST/HST tax credit, which reimburses you for the GST/HST you paid on goods or services related to your self-employment.
Tax deductions for self-employed workers
When you’re self-employed, you can deduct certain business expenses from your income, thereby lowering your taxable income and the amount of federal taxes you pay. Make sure to keep all the receipts for any expenses you want to claim.
These types of expenses include, but are not limited to, the following:
- Advertising expenses such as business cards or online marketing.
- Vehicle expenses such as maintenance, insurance, and gas.
- Banking fees.
- Office supplies.
- Cell phone and utilities.
- Professional fees.
- Certain meals and entertainment costs.
The CRA website has a list of common business expenses you can write off on your taxes.
How to file self-employed taxes in Canada
As a self-employed individual, you have to file:
- The T1 General Form, also called the Income Tax and Benefit Return, that Canadians use to file personal tax returns.
- Form T-2125, also known as the Statement of Business or Professional Activities.
- A separate GST/HST return if you are registered to collect GST/HST.
You can file your annual tax return using an online tax program, but make sure to choose CRA-approved tax software. Wealthsimple Tax and TurboTax are two popular tax programs that offer options for self-employed Canadians.
You can hire an accountant to do your taxes, too. This will cost more than filing the returns yourself with an online program, but it might be less stressful. Just make sure you have all your forms, receipts and other documentation in order.
You can also take advantage of free support offered by the CRA through its Liaison Officer service to help you better understand your tax obligations. This can be done virtually over the phone or via videoconference. You can learn more about this service on the CRA website.
Self-employed tax deadlines for 2023
Self-employed Canadians have until June 15 to file their annual tax returns for the previous year, however, they must pay any taxes owed by April 30, the same payment deadline for employed individuals.
If you expect to owe more than $3,000 in annual income tax ($1,800 if you’re in Quebec), you‘ll need to pay your taxes in quarterly installments. These installments are typically due on the 15th of March, June, September, and December every year.
Make sure to keep on top of your taxes and pay them fully on time as per your schedule, whether it’s quarterly or annual, to avoid any interest charges or penalties.
Frequently asked questions about self-employment taxes
As a self-employed individual, you’ll likely need to file a T1 General Form, Form T-2125 and a separate GST/HST return form, among others.
No, clothing is not an expense you can typically claim on your taxes when self-employed in Canada.
DIVE EVEN DEEPER
If you’re able to claim them, tax credits can reduce your overall tax bill. Find out which tax credits might apply to your personal and financial situation.