Updated on 27 July 2024

A self-employed individual in Canada is one who operates their own business that is not registered as a corporation. Instead of receiving wages from a company as employment income, self-employed individual receives business income as their own income.

As a self-employed person working and living in Canada, there are a number of specific tax return documents you must submit to the CRA (Canada Revenue Agency) each year. Navigating which self-employed tax forms apply to you can be difficult, especially in your first year of operation.

Filing your tax return as a self-employed individual does not have to be stressful, especially if you have kept detailed financial records for the year. There are a few key differences between filing as self-employed compared with filing as an employee.

You should always consult with an accountant for your self-employed tax return to ensure you are meeting the right deadlines and filing the correct paperwork.

What is Your Self-Employed Business?

First, what kind of business qualifies as a self-employed business?

Most self-employed individuals structure their businesses as:

1. A sole proprietorship
2. An unincorporated partnership
3. An unincorporated limited liability partnership
4. An unincorporated general partnership

Each of these structures generates self-employed income. In a sole proprietorship, the single owner claims the business income as their own, while in a partnership, two or more owners split the business income among themselves.

Self-Employed Tax Return Forms

There are a number of relevant tax forms for self-employed individuals. You will always need to file a personal tax return alongside other applicable returns.

• Form T2125, Statement of Business or Professional Activities

  This form is where you will record your personal and business income. You will also record your business expenses and be able to deduct these costs from your total.

• Form T4A, Statement of Pension, Retirement, Annuity, and Other Income

  This self-employment income slip helps individuals keep track of their income by client or job throughout the year. A contractor or freelancer will generally receive a T4 slip from each of their clients for the jobs completed within the specified tax period, providing the total dollar amount for each job. This helps you track and record your income and calculate taxes owing.

• Form T5013, Partnership Information Return

  Only self-employed individuals that run their business as a partnership need to complete this form. All types of partners must file this return. If you own an interest in the partnership, you must also fill out Form T5013SUM, Summary of Partnership Income.

• Form T1 Return

  When you complete the above relevant documents, you take that information and apply it to your T1 general return. Your self-employed business earnings are your personal income.

• Form GST34

  If your sole proprietorship or partnership makes more than $30 000 per year, you need to register for a GST/HST number and file a GST/HST return each year. This allows the CRA to collect GST/HST from your business. Registering for this number when you reach the $30 000 threshold is your responsibility as a self-employed individual.

Navigating Employed and Self-Employed Tax Returns

What do you do if you are an employee of another corporation while also working within your own sole proprietorship or partnership?

This is a situation becoming more and more common as people work full-time for an employer but have a “side gig” of their own business. In this case, your self-employment income will be reported using the same forms documented here. You will receive a T4 from your employer for income earned from them that you can incorporate into your T1 personal return with your self-employment income.

The amount of tax owed on your self-employment income and the expenses you can deduct can differ when you have these two sets of income. To ensure you are not overcharged on your tax return and that you deduct the correct amount, always work with a professional tax accountant.

Deadlines for Self-Employed Tax Returns

The tax deadline for self-employed returns is June 15th for the taxpayer and their spouse. Any tax payable from that return is due by April 30th of the following year. It is highly recommended that self-employed individuals complete their tax return by the due date of April 30th, to prevent interest from accumulating on the amount that you may owe.

The CRA will inform you if tax installment payments must be made for a subsequent year. The due dates for these are March 15, June 15, September 15, and December 15 of each year.

Self-Employed Tax Return Guide

How can you do a self-employed tax return? Get all the necessary details for filing your taxes from Accountor CPA.

Self-Employed Tax Rates and Deductions (2024)

Self-employed tax rates are subject to the same tax rates as an individual earning employment income. The 2024 federal tax rates for individual income are:

• 15% on the portion of taxable income that is $55,867 or less, plus
• 20.5% on the next $55,867 of taxable income (on the portion of taxable income over $55,867 up to $111,733), plus
• 26% on the next $111,733 of taxable income (on the portion of taxable income over $111,733 up to $173,205), plus
• 29% on the next $173,205 of taxable income (on the portion of taxable income over $173,205 up to $246,752), plus
• 33% of taxable income over $246,752

View up-to-date federal tax rates for independent business income at Canada Revenue Agency.

In addition to tax rates, self-employed individuals also must contribute to the Canadian Pension Plan (CPP). Canadians between the age of 18 and 70 who have net self-employment income and pensionable employment income greater than $3500 have to contribute to the CPP. Regular workers contribute a particular percentage of their wages while their employer contributes an equal amount, to a maximum annual percentage.

Self-employed people, however, do not have employers deducting CPP and remitting it to the CRA. They are responsible for both their portion of CPP and what would have been their employer’s contribution.

For 2024, self-employed Canadians must prepare to pay to the CRA 11.9% of their income up to a maximum of $7,877.80 when they pay their taxes. The CPP contribution rate is set to increase over the next few years for self-employment, so it is imperative to keep up with these rates so you can set aside an accurate amount.

If you want to be eligible for EI, which includes benefits for taking maternity, parental, sickness, and compassionate care leave, you have to register as a self-employed individual.

Declaring Expenses for Self-employed

As a freelancer or contracted individual, you are entitled to deduct expenses when completing your income tax return. Claiming business-related expenses reduces the amount of business income you owe to the CRA. It also puts together an accurate picture of your business’ financial health - you see your income compared to your expenses clearly.

Some of the most common expenses for a self-employed tax return are:

1. Wages and benefits
2. Inventory
3. Traveling
4. Legal and accounting fees
5. Cell phone fees
6. Rent and leases
7. Maintenance
8. Bank charges
9. Office supplies
10. Advertising
11. Business-use-of-home expenses if you operate out of a home office (mortgage interest, utilities, property taxes, repair and maintenance, Internet)
12. Vehicle expenses (repairs, lease, depreciation, parking, gas, oil changes, registration fees)

For the complete list of eligible business expenses, visit the Canada Revenue Agency. It can be confusing to navigate what expenses count towards business expenses and in what percentage. It is always advised to have an assessment with a tax accountant to ensure you file businesses expenses accurately.

Submit Self-Employed Tax Return Online

Self-employed individuals can file their tax returns online when they register for CRA’s MyAccount. There are many accounting programs available to help simplify the tax filing process as well as they walk you through filling out the relevant tax forms and pull relevant past tax forms from the CRA. Always consult with an accountant when choosing accounting software to find the one that is best for you.

Filing your self-employed tax return online means that you can more quickly find out how much you owe in taxes and CPP or if you are eligible for a tax refund, can receive that more quickly via direct deposit, rather than waiting for a cheque in the mail.

What Does A Self-Employed Tax Return Cost?

The cost for filing a self-employed tax return with the CRA is free - the same as filing a personal tax return.

If you choose to work with a tax accountant to file your return, the fees for this service can vary depending on your income, expenses, deductions, dependents, and other unique factors. Typically, the rates accountants charge for self-employed individuals are very reasonable.

Filing your self-employed tax return incorrectly can have consequences on your personal standing with the CRA and lead to high interest, penalties, or an audit. Working with a tax accountant ensures that you meet all the deadlines and file all documents correctly so you can avoid these costly penalties and audits.

Am I Eligible for a Self-Employed Tax Refund?

A self-employed individual can be eligible for a tax refund depending on their income and expenses. However, because self-employed individuals do not have employers remitting tax to the CRA on each paycheque, they are often caught off guard by the amount of tax owing at the end of the year. More often than not, a self-employed individual will have to pay taxes and CPP rather than receive a refund.

It is important for self-employed individuals to set aside profits from each invoice or payment they receive so that come year-end, they are not scrambling to find the sum to pay the CRA. The general rule is to set aside between 25% and 30% of the income earned for taxes to cover CPP, federal income tax, provincial income tax, and GST/HST (if registered).

Working with a tax accountant that provides tax planning services can help you maximize your return and lower the amount of tax you owe each year.

Do You Need an Accountant for Self-Employed Tax Returns?

You can file your own self-employed tax return if you have the necessary knowledge and experience to complete your return comprehensively. If you have just started a business or have recently changed business operations (such as meeting the GST/HST threshold for the first time), it is always recommended to consult with a professional tax accountant.

A tax accountant can ensure you meet all relevant deadlines, fill out all relevant tax forms correctly, and maximize your tax savings. They can also help with short and long-term tax planning to help you make business decisions that will help you keep more of your money.

Accountor CPA works with self-employed individuals across Canada to file their self-employed income tax returns each year. Learn how we can help your business grow and get the most out of your tax return.

Conclusion

One unique aspect of filing taxes as a self-employed individual in Canada is the ability to claim the Scientific Research and Experimental Development (SR&ED) tax incentive. This program allows self-employed individuals to claim tax credits for conducting eligible research and development activities, potentially providing significant savings. The SR&ED program is designed to encourage innovation and investment in research, offering a refundable tax credit of up to 35% on qualified expenditures. For more details on eligibility and claiming SR&ED credits, visit the Government of Canada SR&ED page.

FAQ

What forms do I need to file as a self-employed individual in Canada?

You need to file a personal tax return (T1), along with Form T2125 (Statement of Business or Professional Activities), and potentially Form GST34 for GST/HST if your revenue exceeds $30,000.

When are the tax deadlines for self-employed individuals?

The tax return deadline is June 15, but any taxes owed must be paid by April 30 to avoid interest.

Can I deduct home office expenses on my self-employed tax return?

Yes, you can deduct a portion of your home expenses (mortgage interest, utilities, property taxes, repairs, internet) proportional to your workspace.

How do I report my income if I have both employment and self-employment income?

You report employment income using a T4 slip and self-employment income using Form T2125 on your T1 return.

What expenses can I deduct as a self-employed individual?

Common deductions include wages, inventory, travel, legal fees, cell phone fees, rent, office supplies, and business-use-of-home expenses.

Do I need to make CPP contributions as a self-employed person?

Yes, you must pay both the employee and employer portions of CPP, totaling 11.9% of your net income.

Is it necessary to hire an accountant for my self-employed tax return?

While not required, hiring an accountant can help ensure accuracy, maximize deductions, and prevent costly mistakes.