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

Published Friday 7 November 2025

Table of contents

• What is a freelancer?
• The difference between being an employee and a freelancer for tax purposes
• How much to set aside for freelance taxes
• Record keeping and expense tracking
• Tax forms for freelancers
• Completing Form T2125 to calculate your gross and net income
• 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
• FAQs on freelance taxes in Canada

Key takeaways

• Set aside 25-30% of your gross freelance income in a separate bank account specifically for taxes and CPP contributions, as you're responsible for calculating and paying your own taxes without employer withholding.

• Register for GST/HST collection once your annual revenue exceeds $30,000, and maintain detailed records using accounting software and a dedicated business bank account to track all income and deductible expenses throughout the year.

• Complete Form T2125 to report your business income and expenses, which determines your net taxable income and allows you to claim legitimate business deductions such as home office costs, vehicle expenses, and professional fees.

• File your personal tax return by April 30th but note that self-employed individuals have until June 15th to file, though any taxes owed must still be paid by April 30th to avoid penalties.

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 and pay taxes directly to the Canada Revenue Agency (CRA).

As a freelancer, your main tax obligations are to

• file business income tax returns
• make Canada Pension Plan (CPP) contributions
• collect GST/HST if your annual revenue exceeds $30,000
• 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

• (most common)
• Partnerships
• Corporations

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

You might earn freelance income by

• selling a product or providing a service
• driving for a rideshare company, where you must register for GST/HST as soon as you start earning revenue
• working a side hustle job on weekends, such as dog walking
• being a small supplier
• Selling a product or providing a service
• Driving for a rideshare company, for which you must register for GST/HST the moment you start earning revenue
• Having a side hustle job working on weekends, such as dog walking
• Being a small supplier

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 need to pay your income taxes, just like other business owners.

The difference between being an employee and a freelancer for tax purposes

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

Employee taxes:

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

Freelancer taxes:

• calculate and set aside tax money from client payments
• save about 30% of your income for taxes
• make quarterly payments if you earn significant income
• pay both the employer and employee portions of CPP

You can deduct work-related expenses, such as part of your utility bills and office costs.

How much to set aside for freelance taxes

One of the biggest questions for new freelancers is how much money to put aside for taxes. Since you don’t have an employer withholding taxes from each paycheque, the responsibility falls on you.

Set aside 25–30% of your gross income for taxes and CPP contributions. The exact amount depends on your income, where you live, and your deductions.

Open a separate bank account for your tax savings. Each time you get paid, transfer a set percentage into this account. Your tax money will be ready when you need to pay the Canada Revenue Agency.

Record keeping and expense tracking

Good record keeping helps you report your income accurately and claim all your deductions. Staying organized throughout the year makes tax filing easier.

Use these tips to keep your finances in order

• use accounting software to track income and categorize expenses automatically
• open a dedicated business bank account and use a separate credit card for business purchases
• keep digital copies of all your receipts by snapping a photo and storing them securely
• Use accounting software to automatically track income and categorize expenses as they happen.
• Open a dedicated business bank account and use a separate credit card for all business-related purchases. This makes it much easier to separate business from personal spending.
• Keep digital copies of all your receipts. Simply snap a photo with your phone and store them in a secure cloud folder or within your accounting software.

Tax forms for freelancers

The tax forms you need as a freelancer depend on your business structure. Most freelancers need Form T2125 and the T1 general form, with other forms depending on your setup.

Sole proprietorships

If you are a sole proprietor, fill out Form T2125 to report your taxable income. For your personal tax, complete the T1 general form and Form T4A if you receive it from clients. If you earn more than $30,000, register for a 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, fill out the T2 form. For your personal tax, submit the T1 general form.

Completing Form T2125 to calculate your gross and net income

Form T2125 calculates 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.

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

This section is for Internet business activities. You need to note the web pages where you earn income and the percentage of income earned from the web pages and websites.

Part 3

You 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

This section lists all the expenses you can deduct. These include deductions 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. 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

Use this section to record your car-related business expenses. For vehicles bought on or after 1 January 2024, the capital cost allowance (CCA) ceiling is $37,000 before tax.

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

Area A

This is where you record capital expenses. This refers to anything that provides "lasting benefit" for your business, such as furniture or computers. You cannot claim the full cost of a capital item in the year you buy it. Instead, claim a set portion of the cost each year.

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

Canadian Pension Plan contributions

Canada Pension Plan (CPP) contributions are mandatory if you earn over $3,500 a year as a freelancer. As a self-employed person, you pay both the employer and employee portions.

CPP requirements:

• Age range: 18 to 70 years old
• Minimum income: $3,500 annually
• pay the full 11.9% contribution, which covers both the employer and employee portions
• Current rates: Check the CRA website for annual updates

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. Some expenses have limits. For example, you can only claim 50% of most food and entertainment costs.

Common deductible expenses include

• Marketing: Business cards, advertising, website costs
• Vehicle: Gas, maintenance, insurance, registration (business portion only)
• Office: Supplies, equipment, software subscriptions
• Professional: Bank fees, legal fees, professional memberships

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

You must register for GST/HST if your revenue from taxable supplies is more than $30,000 in a single calendar quarter or over the last four consecutive calendar quarters. If you earn less, registration is optional but can offer tax benefits.

The main threshold is $30,000 in annual revenue.

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

GST, HST, and PST rates are

• GST: 5% federal tax (all provinces)
• HST: Combined GST + provincial tax (participating provinces)
• PST: Separate provincial tax (BC, Saskatchewan, Manitoba)

Once you register, you must keep collecting GST/HST until you close your business or deregister.

Register on the CRA website. You will need to make payments monthly, quarterly or annually.

When you charge sales tax, you can claim input tax credits (ITCs). These let you reclaim the sales tax you pay on your business expenses.

You can file your GST and HST return online or by paper. You can also pay electronically through your bank account.

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

Tax deadlines in Canada vary depending on your situation.

The filing deadline for a personal tax return is 30 April. The tax year ends on 31 December.

The self-employment tax return is due on 15 June. Any balance owing is due by 30 April. This means you must pay before you file your return.

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

Managing your freelance taxes efficiently

Staying organized throughout the year makes tax time easier. Accounting software helps you track income and expenses in real time, so you always know where you stand. It automates small tasks and gives you a clear view of your finances. Try Xero to simplify your bookkeeping with a free trial.

FAQs on freelance taxes in Canada

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

Do freelancers get T4s?

No, freelancers do not receive T4 slips. T4s are for employees. Instead, you may receive a T4A slip, Statement of Pension, Retirement, Annuity, and Other Income, from clients who have paid you for your services. You must report all your freelance income, even if you don't receive a T4A.

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

There isn't a single tax rate for independent contractors. The amount of tax you pay depends on your net income (your total income minus your business expenses) and which federal and provincial tax brackets you fall into. Your tax rate increases as your income rises.

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

Yes, you must report all self-employment income you earn, no matter how small the amount. The $30,000 threshold relates specifically to whether you need to register for, collect, and remit GST/HST. Once your revenue exceeds $30,000 in four consecutive calendar quarters, you must register for a GST/HST number.

When do I need to make quarterly tax payments?

You may need to pay your income tax in instalments if your net tax owing will be more than $3,000 in the current year and was also over $3,000 in either of the last two years. The Canada Revenue Agency (CRA) will typically send you a reminder if you are required to pay in instalments.

Can I deduct home office expenses as a freelancer?

Yes, you can deduct home office expenses if your home is your main place of business, or if you use the space exclusively for your business and to meet with clients on a regular basis. You can claim a portion of your home expenses, like utilities, rent, and insurance, based on the percentage of your home used for business.