Self-Employment Basics
| Topic | Details |
|---|---|
| Legal structure | Sole proprietor (default), or incorporate (if earning $80K+) |
| Business number | Required for GST/HST registration, payroll |
| Tax filing | T2125 (business income) filed with personal T1 return |
| Filing deadline | June 15 (but taxes owed due April 30) |
| Tax instalments | Required if you owe $3,000+ in taxes |
| Record keeping | Must keep all records for 6 years |
| Business bank account | Strongly recommended (not legally required for sole prop) |
Types of Gig/Freelance Income
| Type | Examples | Tax Form |
|---|---|---|
| Freelance services | Writing, design, consulting, development | T2125 |
| Gig platforms | Uber, DoorDash, Skip The Dishes, TaskRabbit | T2125 |
| Online selling | Etsy, Amazon FBA, Shopify | T2125 |
| Rental (short-term) | Airbnb | T2125 or T776 |
| Content creation | YouTube, TikTok, Patreon | T2125 |
| Tutoring/coaching | Private lessons | T2125 |
Tax Deductions for Self-Employed
| Deduction | Eligible Expense | Notes |
|---|---|---|
| Home office | Rent, mortgage interest, utilities, internet (% of home used) | Dedicated space or regular use |
| Vehicle | Gas, insurance, maintenance, depreciation (% business use) | Keep a mileage log |
| Phone/internet | Business portion of personal plans | 50-75% typical |
| Computer/equipment | Laptop, monitor, desk, chair | CCA (depreciation) or immediate expensing |
| Software/subscriptions | Design tools, accounting software, cloud services | 100% if business-only |
| Professional development | Courses, conferences, certifications | Must be related to business |
| Office supplies | Paper, ink, postage | 100% |
| Professional fees | Accountant, lawyer, bookkeeper | 100% |
| Advertising/marketing | Website, business cards, ads | 100% |
| Meals (with clients) | Business meals | 50% deductible |
| Travel | Flights, hotels for business | 100% (if business purpose) |
| Insurance | Professional liability, E&O | 100% |
| Bad debts | Uncollected invoices | Write off uncollectable amounts |
Home Office Deduction (Example)
| Item | Total Annual Cost | Home Office % (15%) | Deduction |
|---|---|---|---|
| Rent | $18,000 | 15% | $2,700 |
| Utilities | $2,400 | 15% | $360 |
| Internet | $960 | 50% (business use) | $480 |
| Home insurance | $1,200 | 15% | $180 |
| Total | $3,720 |
GST/HST for Freelancers
| Rule | Details |
|---|---|
| Registration threshold | $30,000 in revenue over 4 quarters |
| Rate | 5% GST (or 13-15% HST depending on province) |
| Input Tax Credits (ITCs) | Claim GST/HST paid on business expenses |
| Filing frequency | Annual, quarterly, or monthly |
| Quick Method | Simplified GST reporting (remit a lower % of revenue) |
Quick Method vs Regular Method
| Method | How It Works | Best For |
|---|---|---|
| Regular | Collect HST on revenue, deduct ITCs on expenses | High business expenses |
| Quick Method | Remit 8.8% of HST-inclusive revenue (Ontario) | Low expenses (service businesses) |
Example: Ontario freelancer earns $100,000 + $13,000 HST. Regular method: remit $13,000 - $3,000 ITCs = $10,000. Quick Method: remit $9,894. Quick Method saves $106 in this example, but savings can be much larger with lower expenses.
CPP for Self-Employed
| Detail | Employee | Self-Employed |
|---|---|---|
| CPP rate (2025) | 5.95% (employee portion) | 11.9% (both portions) |
| CPP2 rate | 4% (employee, on income $68,500-$73,200) | 8% (both portions) |
| Maximum CPP contribution | ~$4,056 | ~$8,112 |
| Pensionable earnings | $3,500-$68,500 | $3,500-$68,500 |
| EI | Mandatory through employer | Optional (can opt in) |
Self-employed pay double CPP because there’s no employer to cover the other half. The employer portion is tax-deductible on your return.
Tax Instalment Payments
| Rule | Details |
|---|---|
| Required when | Net tax owing exceeds $3,000 in current year AND either of the two prior years |
| Payment dates | March 15, June 15, September 15, December 15 |
| Calculation | CRA sends instalment reminders; you can use prior-year method or current-year estimate |
| Penalty | Interest charged on late/missed instalments |
| Tip | Set up automatic transfers on instalment dates |
Retirement Planning Without an Employer
| Account | Contribution Room | Best For |
|---|---|---|
| RRSP | 18% of earned income (max $32,490/2025) | Tax deduction now, income later |
| TFSA | $7,000/year (2025) | Tax-free growth, flexible access |
| FHSA | $8,000/year ($40,000 lifetime) | First home savings |
| Personal pension (IPP) | Available if incorporated | High-income incorporated freelancers |
| Non-registered | No limit | After maxing registered accounts |
Retirement Savings Target for Freelancers
| Annual Income | Save 15-20% | Monthly Savings | RRSP Room |
|---|---|---|---|
| $50,000 | $7,500-$10,000 | $625-$833 | $9,000 |
| $75,000 | $11,250-$15,000 | $937-$1,250 | $13,500 |
| $100,000 | $15,000-$20,000 | $1,250-$1,667 | $18,000 |
| $150,000 | $22,500-$30,000 | $1,875-$2,500 | $27,000 |
Insurance for Self-Employed
| Insurance | Purpose | Cost |
|---|---|---|
| Extended health/dental | Personal health coverage | $100-$300/month |
| Disability insurance | Income replacement if unable to work | $50-$200/month |
| Professional liability (E&O) | Protects against client claims | $300-$1,500/year |
| Critical illness | Lump sum payout for serious illness | $30-$100/month |
| Life insurance | Family protection | $20-$60/month (term) |
| EI (voluntary opt-in) | Maternity/parental, sickness, compassionate care | 1.58x EI premiums |
Invoicing and Getting Paid
| Best Practice | Details |
|---|---|
| Professional invoices | Include name, business number, services, amount, GST/HST |
| Payment terms | Net 15 or Net 30 (specify on every invoice) |
| Late payment clause | 1.5-2% per month interest on overdue invoices |
| Contracts | Always have a written agreement before starting work |
| Retainers | Request 25-50% upfront for large projects |
| Payment methods | E-Transfer, direct deposit, PayPal, Stripe |
| Track all income | Every payment, including cash and barter |
Bookkeeping Setup
| Tool | Cost | Best For |
|---|---|---|
| Wave | Free | Simple invoicing and bookkeeping |
| FreshBooks | $22-$60/month | Freelancers (invoicing-focused) |
| QuickBooks Online | $36-$90/month | Growing businesses |
| Xero | $18-$60/month | Multiple currencies |
| Spreadsheet | Free | Very simple operations |
Incorporation Decision
| Factor | Sole Proprietor | Incorporated |
|---|---|---|
| Setup cost | $0 | $1,000-$2,500 |
| Annual cost (legal/accounting) | $200-$500 | $2,000-$5,000 |
| Tax rate on first $500K profit | Personal rate (20-53%) | 12.2% (small business rate, varies by province) |
| Tax deferral | None | ✅ Leave profits in corp at low rate |
| Liability protection | ❌ Personal liability | ✅ Limited liability |
| Worth it starting at | N/A | ~$80,000-$100,000+ net income |
| Income splitting | Limited | ✅ Salary/dividends to spouse (TOSI rules apply) |
Monthly Financial Routine
| Task | Frequency | Tool |
|---|---|---|
| Track income | Per payment received | Accounting software |
| Track expenses | Weekly | Accounting software + receipt scanner |
| Set aside tax money | Per payment (25-35%) | Separate HISA |
| Reconcile books | Monthly | Accounting software |
| Invoice clients | Per project/monthly | FreshBooks, Wave |
| Review cash flow | Monthly | Spreadsheet |
| Pay tax instalments | Quarterly | CRA My Payment |
| Year-end bookkeeping | Annually | Accountant |