Industry tax guides
Freelancer and Consultant Taxes in Canada: What Self Employed Professionals Owe
Both halvesof CPP contributions are paid by a self employed freelancer, the employee share and the employer share, through their personal return.
Sources checked October 20263 min read
Key points
- Freelance income and expenses go on Form T2125 with the personal return
- Self employed people pay both shares of CPP and can claim a home office that meets the CRA's conditions
- GST/HST registration is required once taxable revenue passes $30,000
- Incorporating can save tax, but a corporation that looks like an employee faces the personal services business rules
Reporting self employment income
A freelancer or consultant working for themselves reports business income and expenses on Form T2125, filed with the personal return, which is due in June though any balance is due at the end of April. Clients that pay fees for services may report them in box 048 of a T4A slip, but every dollar earned is reportable whether or not a slip arrives. Being treated as self employed depends on the working relationship, not the contract's label, so a single client setting the hours and tools can make it employment.
Self employed people pay both the employee and the employer share of CPP contributions on their net business income, which is often the surprise in the first year.
Expenses, GST and instalments
Reasonable expenses to earn the income are deductible: software, equipment through capital cost allowance, professional fees and memberships, insurance, the business share of a phone and internet, and a home office that is the principal place of business or used regularly to meet clients. Meals and entertainment are limited to 50%. GST/HST registration is required once taxable revenue passes $30,000 in a quarter or over four quarters, and services to clients outside Canada are often zero rated exports.
With no tax withheld at source, a freelancer whose net tax owing passes $3,000 in the current year and either of the two previous years is expected to pay quarterly instalments.
When to incorporate
A corporation earning active business income can pay the small business rate, 9% federally on the first $500,000, and leave profits invested until they are needed. The catch for consultants is the personal services business rules: a corporation that would be an employee of its client if the corporation were removed loses the small business deduction and pays a higher rate. Dividends to family members also face tax on split income unless an exclusion applies.
Quick answers
Do freelancers have to pay CPP?
Yes. Self employed people pay both the employee and the employer share of CPP contributions on their net self employment income, calculated on their personal return.
When does a freelancer need a GST number?
Once taxable revenue passes $30,000 in a calendar quarter or over four consecutive quarters. Registering earlier is allowed.
Should a consultant incorporate?
It can defer tax when profits are left in the corporation, but a corporation that works like an employee of one client risks the personal services business rules, which remove the small business rate.
Related pages
Official sources
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Important. This article provides general educational information, not legal or tax advice for a specific business. Rules, administrative policies, rates and deadlines can change. Confirm your facts and current obligations with the responsible government agency and a qualified adviser.