Working for yourself? Nobody withholds your tax.
Freelancers, contractors and sole proprietors pay tax differently from employees. Here are the three things that catch people out.
How it works, in three steps
- 1You are taxed on your net business income. That is your revenue minus allowable business expenses, reported on your personal return (Form T2125). There is no employer to take tax off first.
- 2You pay both halves of the Canada Pension Plan. An employee and an employer each pay 5.95% of earnings in 2026. As a self-employed person you pay both, so 11.9% of net business income, within limits. Quebec residents contribute to the Quebec Pension Plan instead.
- 3You may have to pay tax in instalments. If your net tax owing is over $3,000 this year and was over $3,000 in either of the two years before ($1,800 in Quebec), the CRA expects quarterly payments on March 15, June 15, September 15 and December 15.
If you skip the instalments, the CRA can charge interest, and the full bill arrives when you file.
One more date to know
If your taxable revenue passes $30,000 over four calendar quarters, you generally have to register for GST/HST and start charging it. Some businesses, such as taxi and ride-sharing drivers, must register from the first dollar. Registering earlier is allowed and lets you claim back the GST/HST you pay on business purchases.
Is this you?
This page is for you if you
- Freelance, contract or run a sole proprietorship
- Get paid with no tax taken off
- File a T2125 with your personal return
Look further if you
- Have incorporated, since a corporation files its own return
- Live in Quebec, where pension and instalment rules differ
- Sell online and have GST/HST questions beyond the registration limit
The honest catches
- Set money aside. The tax and CPP are due even when you did not withhold them, so many self-employed people move part of each payment into a separate account.
- Records are your proof. Keep receipts and invoices. Expenses are only deductible if you can show them.
- Rates change. CPP rates and limits are updated every year, so check the current figures.
This is education, not tax, legal or investment advice. Talk to a licensed Canadian chartered professional accountant or certified financial planner before you act.
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