How Self-Employed Income Is Taxed in Canada

How is self-employment income taxed?

A sole proprietor's profit, rather than the amount transferred to a personal bank account, goes on their personal income tax return. Profit is business income minus allowable business expenses. It is combined with other taxable income, such as wages, and taxed under federal and provincial or territorial income-tax rules. Each tax bracket applies only to income within that bracket (CRA: tax brackets; CRA: T4002). The provincial or territorial rate follows where you lived on December 31, even after a move during the year; Form T2203 works out that tax when business income is taxable in more than one jurisdiction (CRA: Form T2203).

The same net business income also feeds the calculation of CPP contributions outside Quebec, or QPP and QPIP contributions in Quebec. Business income does not become wages just because a client issues a slip. Taking an owner's draw does not reduce business profit (CRA: T4002; Revenu Québec: self-employed contributions).

How do I report self-employment income on my return?

Most sole proprietors report business or professional income and expenses on Form T2125, filed with the personal T1 return. Prepare a separate form for each distinct business. Farmers and fishers use different forms (CRA: T4002). The business year-end is generally December 31; an eligible individual may elect another by filing Form T1139 with the return for the business's first year, by its filing due date, and generally again each year (CRA: fiscal period; Income Tax Act s. 249.1(4)).

An individual partner reports their share of partnership profit or loss, not the partnership's full sales. Form T2125 or financial statements may be required; if the partnership issues a T5013, use it to check your share. See Which returns does your business file? for partnership filing (CRA: partnerships).

Start with sales or fees earned, reconcile them to invoices and deposits, and subtract the sales taxes included in them in Part 3A or 3B; quick-method GST/HST filers then add back tax collected minus tax remitted. Subtract allowable expenses and carry the net profit or loss to the personal return. Most businesses must use the accrual method: record income when earned and expenses when incurred, even if cash moves later. Farmers, fishers, and self-employed commission agents can use the cash method in some cases (CRA: reporting methods; CRA: T2125 income).

Quebec residents also report business income on their Quebec return, generally using Form TP-80-V and Schedule L. For other required business returns, see Which returns does your business file?.

Do I pay both halves of CPP?

If CPP applies, yes. A self-employed CPP contributor pays the combined employee and employer contribution on eligible net self-employment income, subject to the annual exemption and earnings ceilings. Employment CPP already paid can reduce what remains payable on self-employment income (CRA: CPP or QPP deduction; Government of Canada: CPP figures).

These figures are from the government's CPP table. Schedule 8 or Form RC381 calculates the amount when you file; employment contributions can change the result (CRA: line 22200). Half of the base contribution and all additional contributions are deducted on line 22200; the other half of the base earns a non-refundable credit on line 31000 (Income Tax Act s. 60(e); CRA: line 31000).

CPP contributions start at age 18 and stop at age 70 or while receiving CPP disability benefits. A CPP or QPP retirement pension recipient aged 65 to 69 may elect to stop contributing. With self-employment income only, make the election on Schedule 8 with your return, by June 15 of the second year after the year it starts; with a job as well, use Form CPT30, given to each employer and sent to the CRA (Service Canada: CPP contributions; CRA: stopping CPP contributions; CPP Regulations s. 83.2).

QPP replaces CPP on self-employment earnings if you lived in Quebec on December 31 (Canada Pension Plan s. 13(4)). Quebec also charges QPIP premiums on self-employment income. Do not use the CPP rates above as a Quebec estimate (Revenu Québec).

How much should I set aside for tax?

Set aside money against projected annual profit, covering both income tax and pension contributions. No single percentage fits every sole proprietor: the result changes with other income, province, deductions, credits, CPP already paid through a job, and whether Quebec's QPP and QPIP apply (CRA: tax brackets; CRA: line 22200).

To set a reserve for each remaining payment, subtract instalments and money already saved from your annual target. Divide the balance by the business receipts you still expect this year, excluding sales tax, and save that share of each receipt. Update the estimate when income or expenses change.

Keep sales tax collected separate from this income-tax reserve: GST/HST registration and remittance have their own rules. See When to register for GST/HST.

When is my return due, and when must I pay?

A sole proprietor generally has until June 15 of the following year to file the personal return, but must pay any income-tax balance by April 30. The later filing date also applies when a spouse or common-law partner is self-employed; it does not extend the payment date (CRA: due dates; Revenu Québec: filing deadline). For the CRA return, the spouse or common-law partner must have lived with you at some time during the year. The June filing extension does not apply when your business expenditures, or theirs, were mainly the cost or capital cost of tax shelter investments (CRA: T4002).

The CRA and Revenu Québec generally move a deadline falling on a weekend or recognized holiday to the next business day under their respective rules. Filing in June while leaving an April balance unpaid can trigger interest (CRA: T4002; Revenu Québec).

Do I have to pay tax instalments?

You may have to pay CRA instalments when your net tax owing exceeds the applicable threshold in the current year and in either of the two preceding years. A large first year of profit alone does not meet that test. Net tax owing is determined after tax withheld and credits, so it is not the same as business revenue (CRA: who pays instalments).

CPP and voluntary EI payable do not count toward the net-tax-owing threshold, but they are added when calculating the instalment amount once the threshold test is met (CRA: instalment calculation chart).

Most required CRA instalments fall due on March 15, June 15, September 15, and December 15, subject to weekend and holiday adjustments. Farming and fishing have a different schedule. A CRA reminder estimates payments; check the current-year condition before relying on it. Quebec may also require separate provincial instalments (CRA: due dates; CRA: who pays; Revenu Québec: contributions). For instalment interest or relief, see Penalties, interest, and relief.

How do I report a T4A amount in box 048?

Box 048 reports fees for services. Match the slip to your invoices and include the fees in the applicable self-employment income on Form T2125 and your personal return; do not add the slip amount again if those invoices are already in your books (CRA: T4A for recipients).

The payer should leave GST/HST and provincial sales tax out of box 048. If box 048 differs from your records, ask the issuer to check it. Reconcile fees, sales tax, timing, and duplicates against your invoices before filing, and keep that reconciliation (CRA: T4A for recipients; CRA: T4A for payers).

How do I report ride-share, delivery, or online marketplace income?

If those activities are your business, report the income on Form T2125 even when a platform pays only the amount left after its fees. Marketplace sellers reconcile their gross sales; drivers and couriers reconcile the fares, delivery fees, tips, and bonuses they earned. Do not count a customer's separate purchases as your sales, and deduct eligible platform fees only once (CRA: T2125 business income; CRA: platform guidance).

Keep platform statements and transaction records alongside invoices, bank statements, and receipts. A ride-share driver must register for GST/HST from the first fare regardless of sales volume; see When to register for GST/HST for that separate obligation (CRA: ride-share registration). If online sales were occasional disposals of personal belongings, whether they were business income depends on the facts; classify them before putting them on T2125 (CRA: personal-use property).

Does the CRA get platform income, and why does a platform ask for my tax number?

Reporting platforms send the CRA identification and transaction information for reportable sellers, including payments credited and fees charged. The reporting rules began with the calendar year 2024; they changed what the CRA can see, not the underlying duty to report taxable business income (CRA: reporting rules; CRA: reporting launch).

Not every platform or seller is covered. If you are a reportable seller, the platform must give you a copy of the information it reports about you by January 31 of the following year. Compare it with your records; business income remains reportable even if no copy arrives (CRA: who is affected; CRA: information shared).

A platform may request a tax identification number to meet those rules. For an individual, that may be a social insurance number; for a business, it may be a business number. Check the request through the platform's trusted channel and compare its annual report with your records. Withholding a required tax number may lead to a CRA penalty. A reported platform amount is a reconciliation starting point, not necessarily the profit taxable on your return (CRA: information shared).

Which expenses can I deduct?

Generally, you may deduct reasonable current expenses incurred to earn business income, but only their business-use portion. Personal spending and an owner's drawings are not business deductions. Keep invoices, receipts, and records showing the business purpose; the CRA can deny unsupported expenses (CRA: T2125 expenses; CRA: records).

Equipment and some vehicle costs are capital items rather than ordinary current expenses. See Capital cost allowance for those rules. If you pay family members, see Paying family members.

Can a self-employed person get EI?

A self-employed Canadian citizen or permanent resident may qualify for EI special benefits, such as sickness or caregiving benefits, after entering an agreement and paying premiums. Benefits also require sufficient net self-employment earnings, reduced time working in the business, and the conditions for the specific benefit. The agreement must generally be active for at least 12 months. Self-employment alone does not provide regular unemployment benefits (Service Canada: self-employed benefits; eligibility).

Once a participant has received special benefits, they must keep paying EI premiums while self-employed and cannot withdraw from the program. Quebec's QPIP separately covers maternity, paternity, parental and adoption benefits; Quebec residents can still have access to other federal EI special benefits under the relevant rules (Service Canada: premiums; Service Canada: benefits).

Example

Illustrative Canadian dollars. A sole proprietor outside Quebec has C$60,000 of fees and C$20,000 of allowable expenses, leaving C$40,000 of profit. They have no employment CPP contributions. An approximate CPP reserve is (C$40,000 − C$3,500) × 11.90% = C$4,343.50; the second additional CPP tier does not apply. If their separate income-tax projection is C$6,000 after considering their province, other income, deductions, and credits, their combined reserve target is C$10,343.50, less any instalments already paid. That income-tax projection is illustrative, not a general rate or calculated tax bill.

Different for you?

• Your sales may require GST/HST registration, or you missed it: see When to register for GST/HST.
• Profit is rising or several income sources make your reserve uncertain: bring your T4As, platform summaries, bank statements, invoices, expense receipts, and vehicle log to tax preparation for a projection.
• You are reviewing equipment or vehicle deductions: see Capital cost allowance.
• You are deciding whether to incorporate: compare sole proprietorship and corporation.
• Your clients are in the US: see Canadian freelancers with US clients.
• You are a US citizen living in Canada: see Americans living in Canada.
• Income came from short-term property rentals: see Rental income in Canada to decide whether it is rental or business income.
• You omitted income in an earlier return: see Unreported income and voluntary disclosure.