Self-Employed Tax Guide for Canadians
Everything self-employed Canadians need to know about filing taxes — instalments, deductions, CPP, and CRA compliance.
Being self-employed in Canada comes with significant tax responsibilities that employees never have to think about. From filing a T2125 to making CPP instalments and remitting HST, this guide walks through everything you need to know to stay compliant and minimize your tax bill.
Filing the T2125 Statement of Business Activities
The T2125 is the form where you report your business income and expenses. It attaches to your personal T1 return and captures revenue, cost of goods sold, gross profit, and detailed expense categories.
Common deductible expenses include advertising, meals and entertainment (50%), home-office costs, vehicle expenses, supplies, insurance, professional fees, and capital cost allowance (CCA) on business assets.
A common mistake is claiming personal expenses as business deductions. The CRA reviews T2125 expense ratios against industry benchmarks — a restaurant owner claiming 60% of revenue in vehicle costs will almost certainly be flagged.
CPP Contributions for the Self-Employed
- As an employee, your employer pays half your CPP. As a self-employed person, you pay both portions — the employee share (5.95% in 2025) and the employer share (5.95%), for a total of 11.9% on earnings up to the Year's Maximum Pensionable Earnings ($71,300 in 2025).
- You claim the employee portion as a deduction on your personal return and the employer portion as a business expense. The net after-tax cost is significantly less than the gross payment.
- If you also have employment income, integrate both sources — the CPP exemption and YMPE apply across all pensionable earnings combined.
Tax Instalment Payments
If your net tax owing is $3,000 or more in a given year (in Quebec, $1,800), the CRA expects you to pay instalments quarterly — March 15, June 15, September 15, and December 15.
The CRA sends a reminder with estimated amounts, but you are responsible even if you don't receive one. Use the prior-year or current-year method to calculate your instalments; choose whichever produces the lower payment.
Late or missed instalments accrue interest at the prescribed rate (currently 9%, compounded daily). Setting up pre-authorized debits through My Account eliminates missed deadlines.
HST Remittance Obligations
- Once your taxable revenue exceeds $30,000 in four consecutive calendar quarters, you must register for, collect, and remit GST/HST.
- You may choose the simplified Quick Method (e.g., remit at 8.8% instead of 12% in BC) if your annual revenue is under $400,000 — this reduces paperwork and keeps the difference as compensation.
- Input tax credits let you recover the GST/HST you paid on business expenses. Filing annually is an option for most self-employed people, but remittance frequency varies by threshold ($3,000, $12,000, or $480,000).
The $30,000 threshold applies globally, not per client or province. If you hit it on one large contract, you're required to register immediately — not at year-end.
What the CRA Verifies
The CRA focuses on expense-to-revenue ratios that deviate from industry norms, repeated business losses, large home-office claims, and vehicle deductions without a mileage log.
Bank and credit card statements are the primary verification tools. If the CRA asks to see your books, they will cross-reference every claimed expense against your deposits and withdrawals.
Maintain separate bank accounts and credit cards for your business. Co-mingling personal and business transactions is the single biggest red flag during a self-employed audit.
Key Takeaways
- 1File a T2125 with your T1 return — track every deductible expense separately during the year.
- 2Pay both CPP portions (11.9% total) as a self-employed person; deduct the employee half on your return.
- 3Make quarterly instalments if you owe $3,000+; missed payments accrue interest at the prescribed rate.
- 4Register for HST once revenue exceeds $30,000; the Quick Method can simplify remittances for eligible businesses.
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