Nobody withholds tax from your invoices anymore. That’s the real shift when you go self-employed in Canada — the money lands in full, and the CRA comes for its share later. Your business income goes on Form T2125 (Statement of Business or Professional Activities), filed with your personal T1 return.
Here’s what that actually involves.
What counts as income
All of it. Client payments, platform payouts, cash jobs, tips, e-transfers — taxable whether it’s your full-time work or a weekend side hustle. The CRA doesn’t draw a line between “real” income and pocket money.
You report your gross revenue first, then subtract expenses to get net income. The tax is calculated on the net.
The two deadlines people mix up
Your return is due June 15. Any tax you owe is due April 30.
That gap catches people every year. The later filing date does not push back the payment date — interest starts accruing on an unpaid balance on May 1, even if you don’t file until June. If you expect to owe, pay your estimate by April 30 and file the paperwork later.
What you can deduct
The test is simple: an expense is deductible if you incurred it to earn business income. Keep the receipt for every one.
- Home office — the business-use portion of rent, utilities, and internet, based on the area you use and how much of it is for work. It can’t create or increase a business loss. See home office deductions.
- Vehicle — the business-use percentage of gas, insurance, maintenance, and more, backed by a mileage log. Personal driving doesn’t count.
- Phone and internet — the business share, not the whole bill.
- Supplies, software subscriptions, and professional fees — fully deductible when they’re for the business.
- Meals with clients — 50% deductible.
Big purchases like a computer or camera usually aren’t deducted all at once. They’re claimed over several years through Capital Cost Allowance (CCA).
CPP — the bill that blindsides people
As an employee, your employer pays half your CPP. Self-employed, you pay both halves: roughly 11.9% of your net business income above the $3,500 basic exemption, up to the annual maximum. That’s on top of income tax, and it’s the number most first-timers forget to budget for.
GST/HST — the $30,000 line
Once your revenue crosses $30,000 over four consecutive quarters, registering for GST/HST is mandatory. After that you charge it on your invoices and remit it to the CRA. Cross the line and ignore it, and you still owe the tax you should have collected. Full details in our GST/HST registration guide.
Set aside 25–30% as you go
The cleanest habit in self-employment: move 25–30% of every payment into a separate account the day it arrives. When April 30 comes, the money is already there instead of coming out of next month’s rent. More on the right percentage to save.
Where Accountly fits
The work isn’t the math — it’s having the numbers ready when you need them. Accountly tracks your income and expenses, scans receipts into CRA categories, and gives you T2125-ready totals so tax time is a copy-paste, not a shoebox.
FAQ
Do I have to file taxes if my self-employment income is small? Yes. All self-employment income is taxable and reportable, regardless of amount. There’s no minimum threshold below which you can skip it.
What’s the difference between business and professional income on the T2125? Both go on the same form, in different sections. Professional income applies to regulated professions (accountants, lawyers, engineers and similar) and can involve work-in-progress rules; most freelancers and gig workers report business income.
When do I have to charge GST/HST? Once your gross revenue passes $30,000 over four consecutive calendar quarters. Below that you can register voluntarily, but it isn’t required.
How much should I set aside for taxes? For most self-employed Canadians, 25–30% of net income covers federal and provincial tax plus CPP. Higher earners should lean toward the top of that range.
Can I deduct expenses if I have no business income yet? Often yes — startup and pre-revenue costs can be deductible if you’ve genuinely started the business. The expense still has to be incurred to earn income.
The information in this guide is for general informational purposes only and is not intended as accounting, tax, business, or legal advice. Accountly does not provide professional services or act as your accountant, tax advisor, or lawyer. No client relationship is created by your use of this material. Always seek advice from qualified professionals who understand your particular circumstances before acting on any information contained herein.
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