Self-Employed Tax Guide
Sole Proprietors & Freelancers
You Started a Business.
The Tax Bill Started With It.
You're a tradesperson, a consultant, a designer, a contractor. The work is yours, and so is the tax nobody withheld along the way. (On the tools? Our Trades & Contractor Tax Guide goes further on the tools deduction, the truck, and the T5018.) This guide walks through what actually changes once you're self-employed in Ontario: the form your return grows, the instalments that catch people in year two, the claims worth making, and the ones that invite a review. It's general information. When we prepare your return, we go through each item against your own records.
You File as a Business Now
You still file a T1. It just grows an extra form, the T2125, called a Statement of Business or Professional Activities. On it you report what you brought in, what it cost you to earn it, and you're taxed on the difference. There's no T4 and no withholding, so nothing has been paid on your behalf all year.
Now the deadline myth. Being self-employed moves your filing deadline to June 15, and a lot of people hear that and relax. Your payment is still due April 30. Interest starts running on May 1 whether the return is filed or not. Think of those extra six weeks as time for paperwork, not for money. Every date that matters is on our Key CRA Dates page.
Nobody Withheld Anything
Year one, you file and you get a bill. Year two is where it squeezes: you're paying last year's balance at the same time as you start quarterly instalments on this year. Those fall on March 15, June 15, September 15, and December 15.
Instalments kick in when your net tax owing tops $3,000 in the current year, and topped it in one of the two years before. Both halves have to be true, so one unusual year on its own won't put you on the schedule. And net tax owing means what's left after withholdings and refundable credits, not your total tax bill.
The half people forget is CPP. An employee splits it with their employer. You're both, so you pay both: 11.9% on net business income above the $3,500 exemption, up to the $74,600 ceiling, then 8% on earnings in the CPP2 band to $85,000. At the ceiling that comes to $9,292.90 in CPP alone, before a dollar of income tax.
The pattern we see is a good first year, no money set aside, and a spring that hurts. If you'd rather know before it arrives, our tax estimator takes about two minutes.
The Vehicle and the Home Office
These are the two most legitimate claims a sole proprietor has, and they're the first two CRA asks about.
The vehicle is a percentage, not a pile of receipts. You take business kilometres over total kilometres, then apply that percentage to your real costs. It needs a logbook to stand behind it, and a logbook written the following April isn't a logbook. Take an odometer reading at the start and end of the year, and record business trips as you make them. Our vehicle logbook guide covers what each entry needs.
The home office works the same way. You take a reasonable share of your home, measured by square footage or by number of rooms, and apply it to heat, hydro, insurance, and rent or mortgage interest. Here's the rule that surprises people: business-use-of-home expenses can't create a loss or deepen one. In a lean year the claim doesn't disappear. It carries forward to a profitable one. Our home office calculator does the percentage and the bills for you, and shows what the claim is worth at your income.
HST at $30,000
You're a small supplier until your revenue passes $30,000 over four consecutive calendar quarters, or in a single quarter on its own. Once you cross that line, registering isn't optional, and you have 29 days to do it.
The trap is timing. You have to charge HST from the day you stop being a small supplier, not the day you got around to registering. Cross in a single quarter and that is the sale that took you over; cross over four quarters and it is the end of the month after the quarter you went over in. Tax you never collected is tax you still owe, and it comes out of your own margin. If you're anywhere near the line, watch the rolling four-quarter total rather than the calendar year.
Worth knowing: $30,000 has been the threshold since 1991, and it isn't indexed to inflation. A business that felt comfortably small a decade ago can cross it today without changing anything but its prices.
Registering voluntarily below the threshold is sometimes the better move, because it lets you claim input tax credits on what you buy. That's worth a conversation before you decide, not after. One exception has no threshold at all: if you drive taxi or commercial ride-share, you register from your first fare. Our HST registration guide covers the two ways to cross the line, the 29 days, what you can claim back, and the quick method.
What Usually Can't Be Claimed
Honesty is part of the service. Meals and entertainment are 50% deductible at best, and only where there's a real business purpose behind them. Everyday clothing doesn't become deductible because you wore it to a client site, though protective gear and genuine uniforms are a different question. Driving from home to the same workplace every day is commuting, not business travel. And the full phone and internet bill isn't a business expense when your household uses both. A reasonable business portion is.
We'd rather tell you this up front than file a return that invites a review two years later. What you can claim, we'll find. What you can't, we'll say so plainly.
Before You File
Four Quick Checks
A separate business account
It isn't a legal requirement for a sole proprietor, but it turns bookkeeping from detective work into arithmetic.
Your logbook
Odometer at both ends of the year, and business trips recorded as you make them rather than reconstructed in April.
Books that are actually current
If the shoebox is winning, bookkeeping costs less than the alternative, and it's the same set of records the T2125 needs.
What to bring
The full list by situation is on our What to Bring checklist, self-employed included.
Common Questions
Three Things People Ask
When is my tax return due if I am self-employed?
Your filing deadline moves to June 15, but any balance owing is still due April 30, and interest starts running on May 1 whether or not the return has been filed. Treat the extra six weeks as time for paperwork, not for money.
When do I have to pay tax by instalments?
When your net tax owing is over $3,000 in the current year and was over $3,000 in either of the two years before. Both halves have to be true, so one unusual year on its own will not put you on the schedule. Instalments fall due on March 15, June 15, September 15 and December 15.
When do I have to register for HST?
Once your revenue passes $30,000 over four consecutive calendar quarters, or in a single quarter on its own. You then have 29 days to register, and you have to charge HST from the day you stop being a small supplier, not the day you got around to registering. Tax you never collected is still owed, so watch the rolling four-quarter total if you are anywhere near it.
Sources: CRA, T4002 Self-employed Business, Professional, Commission, Farming, and Fishing Income · CRA, Required tax instalments for individuals · CRA, When to register for and start charging the GST/HST · CRA, CPP contribution rates, maximums and exemptions
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Related guides and tools
Trades & Contractor Tax Guide
Tax for tradespeople in London, Ontario: employee vs subcontractor, the tools deduction, vehicle and HST rules, and the T5018 most contractors miss.
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Read the guide →Vehicle Logbook
What the CRA expects a vehicle logbook to record, why it has to start January 1, the three-month shortcut after year one, and what happens without one.
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