A complete guide to self-employed taxes in Canada

Being your own boss has its perks—no dress code, flexible hours, and the ability to work remotely from anywhere. But come tax season, that freedom comes with a catch. As a self-employed worker, you’re in charge of tracking income, claiming deductions, and making sure the Canada Revenue Agency (CRA) gets the correct amount.

Filing self-employed taxes in Canada isn’t hard. But it does take a little more effort than plugging a few numbers into a T4 tax return. You’ll need a T2125 to report your business income, and if you make over $30,000, you’ll also need to handle GST/HST separately.

Not sure where to start? In this guide, we’ll explain what the Canada Revenue Agency (CRA) considers self-employment, how to file if you qualify, and which business expenses you can deduct to lower your taxable income.

Who’s considered self-employed in Canada?

Canadian employment law is straightforward: If you earn income without an employer deducting taxes for you, Canadian tax authorities likely consider you self-employed. According to the CRA, you’re self-employed if you: 

• Run a business as a sole proprietor or independent contractor
• Are part of a business partnership
• Do freelance, consulting, or contract work
• Earn income through online platforms or apps

If you’re self-employed, you’re responsible for tracking income and expenses, claiming deductions, and filing the right tax forms—like the T2125 GST/HST returns (more on those below).

Differences between business income and employment income

What can you deduct, and when do you have to file taxes in Canada? That depends on your employment status. To put it simply, if taxes are deducted directly from your paycheck, that’s employment income. If you send invoices and set aside money for taxes, that’s business income. 

Let’s break it down further:

How they’re taxed

• Business income: Self-employed individuals are responsible for calculating and remitting their own income tax and must report it on a T2125 form (Statement of Business or Professional Activities) as part of their personal tax return. Some clients may issue a T4A slip (Statement of Pension, Retirement, Annuity, and Other Income), which shows the income they paid you—but not all business income will necessarily appear on a T4A. 
• Employment income: Employers automatically deduct income tax, CPP (Canada Pension Plan), and benefits like EI (Employment Insurance) from your pay and report it on a T4 slip provided at tax time.

Tax deductions and business expenses

• Business income: You can deduct many expenses related to earning business income, including home office costs, rent, advertising, supplies, and other costs related to your professional activities. 
• Employment income: Salaried workers have limited work-related deductions with strict guidelines set by the Canada Revenue Agency, including travel costs, vehicle expenses, and office supplies. 

Tax payments

• Business income: If you’re self-employed and owe more than $3,000 in taxes in the current year or either of the two previous years, you may need to pay quarterly tax installments. The Canada Revenue Agency charges interest on late or missed installment payments. 
• Employment income: Filing your return is usually simple since your employer automatically deducts income tax from each paycheck throughout the year.

How to file self-employed taxes in Canada

Filing small business, independent contractor, or sole proprietorship taxes in Canada is straightforward once you have the right information and proper forms. To start, you’ll need to complete Form T2125 to report your business income and expenses. 

Be prepared to include the following information when calculating your tax liability and filing your return:

• Personal information: This includes your full legal name, business name and number (BN) if applicable, business address, and SIN (Social Insurance Number). 
• Type of business: Small business, sole proprietorship, and independent contractor taxes in Canada are filed using the same form. However, you’ll still need to indicate what type of business applies to your work. 
• Description of your activity: This is a brief explanation of your business or freelance work, including the products or services you provide. 
• Income: This includes the total revenue your business earned, including commissions, fees, and sales (before deducting expenses).
• Self-employment expenses: This refers to any costs associated with your work, including rent, property taxes, and accounting fees. 

How to calculate self-employed taxes

Independent contractor, sole proprietorship, and small business taxes in Canada are calculated using a graduated tax system. The Canada Revenue Agency applies tax rates based on your total earned income in a given tax year. Your taxable income is your income after subtracting eligible deductions, tax benefits, and exemptions. 

As of 2025, these are the rates that apply to your federal income tax return: 

• 15% on the first $57,375 of taxable income
• 20.5% on taxable income between $57,375 and $114,750
• 26% on taxable income between $114,750 and $177,882
• 29% on taxable income between $177,882 and $253,414
• 33% on any taxable income over $253,414

Let’s say you earn $78,000 during the tax year. Here’s how it would work:

• You’ll pay a 15% tax on the first $57,375 of your income
• The remaining $20,625 falls in the 20.5% tax bracket. 

If your total self-employment revenue exceeds $30,000 over four consecutive calendar quarters, the Canada Revenue Agency no longer considers you a small supplier. You must register for a GST/HST number and begin charging, collecting, and remitting goods and services tax or harmonized sales tax, depending on guidelines in your province or territory. 

Tax deductions for self-employed workers

Office supplies, internet bills, and social media ads—you can often deduct all that. Basically, if it directly supports your business operations, there’s a good chance it qualifies as a business expense that can reduce your taxable income. 

• Advertising and marketing: Any costs related to promoting your business, from sponsored ads to printed flyers and website design. If the expense helps you attract or keep clients, you can count it as a business expense. 
• Vehicle expenses: If you use your vehicle for business, whether it’s driving to meet clients, delivering products, or running errands, you can deduct a portion of related costs. This includes fuel, maintenance, insurance, parking, and lease payments. You’ll need to carefully track your business and personal use to calculate the deductible portion accurately. 
• Banking fees: Canadian tax payers can deduct interest on business loans, loan brokerage fees, legal fees, and accounting fees related to business financing. Regular banking service charges on business accounts are also deductible. 
• Office supplies: Any supplies that support your business activities, such as pens, paper, business-related software, and cleaning materials (if used for work), are deductible. 
• Cell phone and utilities: You can deduct a portion of your home utilities—including electricity, heat, water, and phone bills—if you use part of your home for business. For mobile phones, you can deduct the business-use portion of your plan. Keep detailed records to support your claims.
• Professional fees: If you’re a member of a trade or commercial association, subscribe to industry publications, or pay annual license fees, you can deduct all your dues. 
• Travel: You can deduct travel-related expenses, including transportation, hotels, and meals. However, only 50% of meal and entertainment expenses are deductible.

Ensure compliance with Canadian tax regulations

For freelancers or small business owners operating in Canada, following Canadian tax laws is a must. While filing isn’t overly complicated, working with skilled tax professionals can help maximize deductions and ensure you’re fully compliant with Canadian employment law and tax regulations. 

If you’re a global company thinking of onboarding freelancers, contractors, or full-time employees in Canada, Oyster’s global employment platform makes the process simple and compliant. Check out our Canadian hiring guide to learn more.

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