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While there are many benefits to being self-employed, there are also some downsides. One, in particular, is filing your taxes as a self-employed person. 

While you simply get a T4 slip when you are an employee, you don’t get that same luxury as a self-employed individual. Most self-employed individuals must complete the T2125 form, among other forms, to do their taxes. 

As a result, doing your self-employed taxes in Canada can be a little bit more complex to deal with than if you were an employee. 

Key Takeaways 

  • As a self-employed individual, you’ll need to file a personal tax return (Form T1 – Income Tax and Benefit Return), and a business tax return (Form T2125 – Statement of Business or Professional Activities).
  • June 17th, 2024 is the tax filing deadline for self-employed individuals as June 15th falls on a Saturday this year.
  • As a self-employed individual, there are many tax expenses you can deduct on your tax return.

Are You Considered Self-Employed?

A self-employed individual is anyone who has their own business or trade as a sole proprietor or contractor. 

As a self-employed individual, you’re responsible for all the taxes and deductions including federal taxes, provincial taxes, CPP contributions on both the employee and employer side and EI contributions (If you opt for it). 

Depending on the nature of your services and the location of your clients, you may also need to charge and remit GST/HST. 

In general, you should save about 25-30% of your annual income for income tax purposes. You may also be required to pre-pay in installments ahead of the filing deadline.

How To File Your Taxes As A Self-Employed Individual?

OnlineYou can use NETFILE-certified tax software to file online. If you file online, you can expect your tax refund (if applicable) faster. 
Tax SpecialistYou can also use a tax specialist to file your tax return through the CRA’s EFILE service. 
Paper ApplicationIf you file a paper tax return, it could take as long as 10 to 12 weeks for it to be processed.  

Documents Required To File Your Self-Employed Taxes In Canada

To file your income taxes as a self-employed person, you’ll need three main forms:

Form T1 – Income Tax and Benefit Return

As a sole proprietor, your business income is treated like personal income, which means you’ll need to report on the T1 form. Your self-employed income is listed on Line 104. This form is also where personal deductions are reported.

Do you know what is line 10100 on your tax return?

Form T2125 – Statement of Business or Professional Activities

In addition to reporting your income on Form T1, you’ll also need to file a business return using Form T2125. This lets the CRA know about your business activities throughout the tax year. This form is also used to list your deductible expenses for your business. 

T4A – Statement of Pension, Retirement, Annuity, and Other Income

If you work as an independent contractor, your clients will complete and submit Form T4A to the CRA when they file their taxes. This form allows your clients to report how much they paid you. Each client you work with will also send you a T4A, which will tell you how much you earned from each client.

Your clients have until the end of February of the following year to send you your copy. But even if they don’t, you’ll still be obligated to ensure this information is recorded so that it can be accurately reported on your Form T1.

Self-Employed Taxes Canada: Filing Deadlines 2024

Self-employed Canadians have an extra month to file their taxes for the 2024 tax year compared to employees. While individuals have until April 30, 2024, to file their taxes, the deadline for self-employed Canadians is June 17, 2024, as June 15 falls on a Saturday this year. 

Note: Since the 15th lands on a weekend, the deadline is pushed to the next business day, June 17th, 2024

How To Calculate Your Self-Employed Taxes Canada

As a self-employed individual, the tax rate you pay is the same for all your business earnings and personal income. The tax rate you are charged depends on your income level, as outlined in the chart below:

Federal Tax RateFederal Income Tax Brackets
15%Applicable to taxable income up to $55,867
20.5%Applicable to taxable income over $55,867 up to $111,733
26%Applicable to taxable income over $111,733 up to $173,205
29%Applicable to taxable income over $173,205 up to $246,752
33%Applicable to taxable income over $246,752

That said, you’ll need to make Canadian Pension Plan (CPP) contributions for both the employer and employee side. If you so choose, you can also make Employment Insurance (EI) contributions, though this is optional.

How Much Money Do You Need To Put Aside For CPP Contributions? 

The contribution rate for CPP is 11.4%. 9.9% for the base rate and 1.5% for the CPP enhancement. As a self-employed individual, you must pay the full amount. 

Your CPP contributions are based on your net business income and the maximum you must contribute is $6,999.60.

Do you live in Quebec? Find out about your QPP contributions.

What Can You Do If You Can’t Pay Your Taxes?

Request Taxpayer Relief

If you’ve gone through serious financial hardships or life events, you may be able to have any late penalties and interest charges waived for not paying your taxes. This will give you some flexibility and time to pay your taxes.

Make A Payment Arrangement With The CRA

If you’re unable to cover the cost of your taxes, you can ask the CRA to create a payment schedule for you. This will allow you to pay your taxes in installments instead of one lump sum payment. Depending on your circumstances, you may be eligible to pay your taxes over 5 years (plus tax and fees).

Use A Personal Loan

If you’re unable to make an agreement with the CRA, consider taking out a personal loan. You can not only spread the costs of your tax payments over a few months to several years but also consolidate other debts with it. Consolidating high-interest debt into a low-interest personal loan can save you a lot of interest over time.

To get the best rates your overall financial health should be good, this includes your income, debt and credit score. If you’re unsure of your credit score, be sure to check it and improve it, if it’s low. You can easily check your credit score for free with numerous platforms such as Compare Hub.

Do Self-Employed Individuals Have To Make EI Contributions?

As mentioned earlier, EI contributions are optional for self-employed Canadians. However, there are certain perks to EI contributions that you may want to consider before opting out, such as the following:

  • Maternal leave or Parental leave
  • Adoptive leave
  • Sick leave
  • Benefits of caring for sick children

Expenses You Can Deduct On Your Self-Employed Taxes In Canada

As a self-employed person, there are certain deductions you can make to lower your taxable income amount and pay fewer taxes overall, such as:

Business Expenses 

Money spent to operate your business is considered a business expense, which can be claimed as a deduction on your tax return. The following are some business expenses you can claim:

  • Start-up costs (such as interest on funds borrowed to start your business)
  • Advertising costs
  • Delivery/shipping fees
  • Professional fees (such as legal, tax, or accounting fees)
  • Office supplies
  • Communication equipment costs (such as telephone, mobile phone, and internet fees for your business)
  • Utility fees

Find out if a business loan is tax-deductible.

Vehicle Expenses 

If you use your vehicle exclusively for business purposes, you can deduct all expenses associated with the vehicle, such as:

  • Insurance
  • Gas
  • Maintenance and repair
  • Parking 

If you use the vehicle for both business and personal reasons, you can deduct a percentage of these expenses based on how frequently the vehicle is used for business purposes. For instance, if you drive your car 20,000 km a year and 10,000 km of that is used for your business, you can deduct 50% of your vehicle expenses from your income.

Office And Home Office Expenses

If you rent your home and use part of it for your business, you can deduct part of the rent and other related expenses on your tax return.

If you work out of your home, you can deduct your home office expenses as well. So long as you use the space regularly as your principal place of business, you can deduct expenses such as: 

  • Heating
  • Electricity
  • Home insurance
  • Property taxes
  • Mortgage interest

To calculate how much you can deduct, you’ll need to use a reasonable calculation. One includes taking the size of your home office and dividing it by the square footage of your entire home. 

For instance, if your home is 2,000 square feet and your home office is 150 square feet, your office is roughly 7.5% of your home. That means you can deduct 7.5% of your mortgage interest or lease, utilities, insurance, repairs, and other related fees on your income tax return.

Self-Employed Taxes Canada FAQs

How much money should I put aside for my taxes?

You should put aside anywhere from 25% to 30% of your earnings to cover your taxes.

How long should I keep my receipts? 

You may be tempted to throw away all of your old receipts, bills, and invoices, but that is not a good idea. The CRA will normally audit your 3 most recent tax returns, but they can . It’s a good idea to keep paperwork for at least that long to ensure you are safe in the unfortunate case of an audit. 

Should I incorporate my business?

When it comes to incorporating, there are two reasons why people do it. One is to protect yourself and limit liability, while the other is for tax purposes. Of course, everyone who is a freelancer or runs a business doesn’t need to incorporate, but the choice is yours. If you make a lot as a company (and thus are in a higher tax bracket), incorporating can save you money. This is because corporate profits are taxed at around 20 percent overall, which is much less than you would be paying in personal income tax if you are making a lot of money. You can choose to invest the excess within the corporation while paying out just enough in dividends (taxed at a lower rate) to meet your expenses.

Do I need to charge GST/HST? 

In addition to claiming your business income, you will eventually need to start charging GST/HST once your revenue once it passes $30,000 a year. Before you can do this, you must, of course, register for a GST/HST number which can be done easily and quickly on the CRA website. You will file this return once a year, normally when you send in your income tax return.
Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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