Self-Employed Tax Guide

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.

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.

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 date you crossed, not the day you got around to registering. 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.