Freelance taxes in Canada: A complete guide to filing and deductions

Published Thursday 4 September 2025

Table of Contents

• What is a freelancer?
• Difference between being an employee and a freelancer for tax purposes
• How much to set aside for freelance taxes
• Record keeping and expense tracking
• Canadian Pension Plan contributions
• Self-employment expense deductions
• GST and HST
• Filing your income tax return
• Tax filing due dates
• Managing your freelance taxes efficiently with Xero
• FAQs on freelance taxes in Canada

Key takeaways

• Set aside 25% to 30% of every client payment in a separate tax savings account to cover federal and provincial income tax plus both employer and employee portions of Canada Pension Plan contributions.
• Complete Form T2125 to calculate your net business income by reporting all freelance revenue and deducting eligible business expenses such as office supplies, vehicle costs, home office expenses, and professional fees.
• Register for GST/HST collection once your annual revenue exceeds $30,000, as this becomes mandatory and requires you to charge clients the appropriate tax rate and remit payments to the CRA.
• Maintain detailed records of all invoices, receipts, and bank statements for at least six years to ensure accurate tax filing and support any deductions you claim on your return.

What is a freelancer?

A freelancer is a self-employed business owner who provides services or products to clients independently. Freelancers complete Form T2125 to report their business or professional income and expenses directly to the Canada Revenue Agency (CRA).

As a freelancer, your main tax obligations are:

• Filing business income tax returns
• Making Canadian Pension Plan (CPP) contributions
• Collecting GST/HST if annual revenue exceeds $30,000

You can structure your freelance business as:

• Sole proprietorships(most common)
• Partnerships
• Corporations

Freelance income is classified as business income when filing a tax return.

Your freelance income can come from:

• Selling a product or providing a service
• Driving for a rideshare company
• Having a side hustle job working on weekends, such as dog walking
• Being a small supplier, which the CRA defines as a person whose revenue from worldwide taxable supplies is equal to or less than $30,000 over the last four consecutive calendar quarters

Freelance work can be full-time, part-time, or a side hustle in addition to a regular job. Some people become freelancers to earn income during their retirement years. You may be working as an independent contractor for other organizations. You must pay income tax on your freelance earnings.

Difference between being an employee and a freelancer for tax purposes

Employees have taxes deducted by their employer. As a freelancer, you calculate and pay your own taxes.

Employee taxes

For employees:

• have taxes withheld from each paycheque
• receive a T4 slip each year for tax filing
• get a refund or pay more tax based on the amount withheld

Freelancer taxes

As a freelancer, you:

• calculate and set aside tax from your client payments
• save about 30% of your income for taxes
• may need to make quarterly payments if you owe more than $3,000 in income tax
• pay both the employer and employee portions of Canada Pension Plan (CPP) contributions

When you file your taxes, you can deduct work-related expenses such as utility bills and office costs.

How much to set aside for freelance taxes

One of the biggest questions for new freelancers is how much income to save for taxes. Since no one is deducting tax from your paycheques, it’s up to you to set it aside.

A common guideline is to save 25% to 30% of every payment you receive. This amount should be enough to cover your federal and provincial income tax, plus both the employee and employer portions of your Canada Pension Plan (CPP) contributions.

Open a separate savings account for your taxes. Each time a client pays you, transfer a percentage of that income into your tax account. This helps you avoid spending your tax money and ensures you are ready to pay the Canada Revenue Agency (CRA).

Record keeping and expense tracking

Good record keeping helps make tax time easier. The CRA requires you to keep detailed records of your income and expenses for at least six years. This helps you accurately report your earnings and ensures you can claim all eligible deductions.

Your records should include:

• Copies of all invoices you send to clients
• Receipts for all your business expenses, both digital and paper
• Bank and credit card statements showing business transactions

Xero accounting software helps you track your income and expenses in one place, capture receipts, and stay organized for tax time.

Tax forms for freelancers

Tax forms for freelancers vary by business structure. Most freelancers need to complete form T2125 and the T1 general form, with additional forms depending on your setup

Sole proprietorships

If you have a sole proprietorship, complete form T2125 to report your taxable income. For your personal tax, complete the T1 general form and, if applicable, the T4A slip (Statement of Pension, Retirement, Annuity and Other Income).

You may receive a T4A slip from clients at the end of February showing the amount earned. If you earn more than $30,000, register for a goods and services tax/harmonized sales tax (GST/HST) number and complete form GST34.

Unincorporated partnerships

If you’ve set up a partnership, you need to file the T5013 Statement of Partnership Information with your return. For personal tax, you submit a T1 general form. You must also complete the T2125 form.

Corporations

If you have incorporated your business, complete the T2 form. For your personal tax, complete the T1 general form.

Completing Form T2125 to calculate your gross and net income

Form T2125calculates your business profit or loss for tax purposes. This form determines your taxable business income by subtracting allowable expenses from your gross revenue.

Who uses T2125:

• Business income: Most freelancers (trade, manufacturing, services)
• Professional income: Regulated professionals (doctors, lawyers, accountants)

Key outcome: Form T2125 shows your net business income, which determines:

• Your income tax bracket
• Total tax owed
• Eligible deductions

Complete a separate T2125 form for each business you operate.

Details about the most relevant sections are below. For assistance in completing the form, use the guide from the CRA.

Part 1

This section is where you complete your identification information:

• Your name and business address
• Business name
• Your industry code and main product or service
• Fiscal tax year

Part 2

In this section, list the web pages where you earn income and the percentage of income from each.

Part 3

Complete the section relevant to your business:

• 3A: Business income: Gross sales or income, including GST/HST. You will end up with an adjusted gross sales or fees.
• 3B: Professional income: Gross professional fees, including GST/HST. You end up with adjusted professional fees.
• 3C: Gross business or professional income.
• 3D: Cost of goods sold profit: After calculating this, you will have your gross profit or loss.

Part 4

In this section, list your deductible expenses such as advertising, office expenses and bank charges.

Deduct the total expenses from your gross business, professional income or gross profit. This gives you your net income before adjustments.

Part 7

This section is for calculating business-use-of-home expenses. Learn more about business-use-of-home expenses. If you have an office in your home that you work from, you can include the costs of that home office here. This includes:

• Heat
• Electricity
• Insurance
• Maintenance
• Mortgage interest
• Property taxes

You will need to calculate the personal use part, capital cost allowance, and amount carried forward from previous years.

Chart A

Record your car-related business expenses here. These can include:

• Fuel and oil
• Car registration and licence fees
• Insurance
• Maintenance and repairs
• Electricity for zero-emission vehicles
• Business parking fees

You will need to record the total kilometres driven during the fiscal period.

Area A

This is where you record capital expenses. This refers to anything that provides a 'lasting benefit' for your business, such as furniture or computers. As a capital cost allowance, you don't claim the full amount of the purchase in the year you bought it. Instead, you claim a portion or set amount of the total cost of the purchase over a few years.

The amount you can claim each year will depend on the expense category.

Canadian Pension Plan contributions

Canada Pension Plan (CPP) contributions are mandatory for freelancers earning over $3,500 annually. As a self-employed person, you pay both the employer and employee portions of CPP.

CPP requirements:

• Age range: 18 to 70 years old
• Minimum income: $3,500 annually
• Double contribution: You pay both employer and employee portions, with the self-employed CPP contribution rate at 11.90%
• Current rates: Check the CRA website for annual updates

Registered Retirement Savings Plan (RRSP) contributions can reduce your taxable income. You can contribute up to your annual limit and deduct the full amount from your business income.

Self-employment expense deductions

Business expense deductions reduce your taxable income. Every legitimate business expense you claim lowers the amount of income you pay tax on.

Common deductible expenses

Common deductible expenses include:

• marketing costs such as business cards, advertising and website costs
• vehicle expenses such as gas, maintenance, insurance and registration (business portion only)
• office supplies, equipment and software subscriptions
• professional fees such as bank fees, legal fees and professional memberships

Specialized deductions

Common specialized deductions include:

• Inventory costs: Products purchased for resale
• Home office: Portion of utilities, rent, property taxes
• Communication: Business phone and internet expenses

See the CRA website for a complete list of business expenses.

GST and HST

According to CPA Canada, you must register for goods and services tax/harmonized sales tax (GST/HST) once your business makes $30,000 annually. Below this threshold, registration is optional but can provide tax benefits.

Key threshold:

• $30,000+ annual revenue: Must register and collect GST/HST
• Under $30,000: Registration is optional

How it works:

• goods and services tax (GST): 5% federal tax (all provinces)
• harmonized sales tax (HST): combined GST and provincial tax (participating provinces)
• provincial sales tax (PST): separate provincial tax (British Columbia, Saskatchewan, Manitoba)

Important: Once registered, you must continue collecting GST/HST until you close your business or deregister.

Register for GST/HST on the Canada Revenue Agency website. You will need to make payments monthly, quarterly or annually.

When you charge sales tax, you can claim input tax credits (ITCs). These allow you to reclaim the sales tax you pay on your business expenses. Learn more about calculating sales tax with Xero.

Filing your income tax return

You can file your freelance tax return yourself or hire a professional.

Self-filing:

• Best for: Simple freelance situations with few deductions
• Method: Online tax software (recommended) or paper forms
• Benefits: Lower cost, full control over timing

Professional tax preparer:

• Best for: Complex situations with multiple income sources
• Benefits: Identifies additional deductions, ensures compliance, saves time
• When to consider: Multiple clients, significant expenses, or incorporation

Tax filing due dates

Canada has different deadlines for filing income tax returns.

The deadline to file your personal tax return is 30 April.

If you are self-employed, your tax return is due 15 June, but any taxes owed must be paid by 30 April.

If you need to pay tax in instalments, the Canada Revenue Agency (CRA) will notify you. Installment payments are due on 15 March, 15 June, 15 September and 15 December.

Managing your freelance taxes efficiently with Xero

You can manage your freelance taxes confidently with the right tools and habits. By tracking your income, saving for taxes, and keeping your expenses organized, you build a strong financial foundation for your business.

Xero accounting software simplifies these tasks and gives you a clear view of your finances, so you can focus on your business. See how easy it is to manage your books and prepare for tax season with Xero.

Try Xero for free.

FAQs on freelance taxes in Canada

Here are answers to some common questions about freelance taxes in Canada.

Do freelancers get T4s?

No, you do not receive a T4 slip because you are not an employee. Instead, clients who pay you more than $500 in a year may issue a T4A slip, which reports the income they paid you. You must report all your freelance income, whether you receive a T4A slip or not.

How much tax do I pay as an independent contractor in Canada?

The amount of tax you pay depends on your total net income and the federal and provincial tax brackets you fall into. You will pay income tax on your net freelance income (gross income minus expenses) plus Canada Pension Plan (CPP) contributions on your earnings.

Do you have to claim business income under $30,000?

Yes, you must report all income you earn, regardless of the amount. The $30,000 threshold relates to GST/HST registration. If you earn more than $30,000 in four consecutive calendar quarters, you must register for, collect, and remit GST/HST.

When do I need to make quarterly tax payments?

The CRA will require you to pay your income tax in instalments (quarterly) if your net tax owing is more than $3,000 in the current year and in either of the two previous years. If you receive a notice from the CRA, you must make these payments by the due dates to avoid penalties.

Can I deduct home office expenses as a freelancer?

Yes, if your home is your main place of business or you use a specific space only for business, you can deduct a portion of your home expenses. This includes a percentage of your rent, electricity, heating and maintenance costs.