Freelance taxes Canada: forms, GST/HST and deductions

Published Tuesday 14 April 2026

Table of contents

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

Key takeaways

• Set aside 25-40% of your gross freelance income in a separate bank account for taxes and CPP contributions, as no one withholds taxes from your payments like they do for employees.
• Register for GST/HST once your annual revenue exceeds $30,000 over four consecutive calendar quarters, or immediately if you drive for commercial rideshare companies regardless of income level.
• Complete Form T2125 to report your business income and expenses, then include this with your personal T1 tax return to calculate your final tax obligation.
• Track all business expenses and keep digital receipts throughout the year using accounting software or cloud storage, as proper record-keeping helps you claim eligible deductions and reduces your taxable income.

What is a freelancer?

A freelancer is a self-employed individual who provides services or products to clients independently. This includes gig workers and platform workers, such as Uber drivers or Upwork contractors. These workers must report and pay tax on all their self-employment income.

As a freelancer, you report your income using Form T2125 and pay taxes directly to the Canada Revenue Agency (CRA).

You can structure your freelance business as

• Sole proprietorships (most common)
• Partnerships
• Corporations

You classify freelance income 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
• working a side hustle job on weekends, such as dog walking
• being a small supplier

If you drive for a rideshare company, you must register for GST/HST as soon as you start. Even if your total income is below the $30,000 threshold, you must collect and remit this tax only on commercial ridesharing services.

Freelance work can be full-time, part-time, or a side hustle alongside regular employment. Regardless of how much you earn, you're responsible for paying your income taxes like any other business owner.

Your main tax obligations as a freelancer

As a freelancer in Canada, you have three main tax obligations to manage throughout the year.

Income tax applies to your net business income. You'll report this on Form T2125 and include it with your personal T1 tax return. Unlike employees, no one withholds taxes from your payments, so you need to set money aside yourself.

Canada Pension Plan (CPP) contributions are mandatory once you earn more than the annual basic exemption of $3,500. As a self-employed person, you pay both the employer and employee portions.

You must collect GST/HST once your annual revenue exceeds $30,000 over four calendar quarters. Below this threshold, you can choose to register and benefit from input tax credits.

If you earn income from clients outside Canada, you must report that foreign income as well. When you pay taxes in another country, you may be able to claim a foreign tax credit. If the total foreign tax paid exceeds $200, you'll need a separate calculation for each country.

How much to set aside for freelance taxes

Set aside 25–40% of your gross freelance income for taxes and CPP contributions. The exact percentage depends on your income level, province, and deductions.

As a freelancer, you're responsible for setting aside your own tax money. Open a separate bank account specifically for tax savings.

Each time you receive payment from a client, transfer your set percentage into this account. Your tax money will be ready when you need to pay the CRA.

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

Employees have taxes deducted automatically from each paycheque. Freelancers calculate and pay their own taxes directly to the CRA.

Employee taxes:

As an employee, your tax situation works differently.

• Receive automatic tax withholding from each paycheque
• Get a T4 slip each year for tax filing
• Pay any balance owing or receive a refund at tax time

Freelancer taxes:

As a freelancer, you manage your own tax obligations.

• Set aside 25–40% of each payment for taxes (aim for about 30%)
• Make quarterly installment payments if you earn significant income
• Pay both the employer and employee portions of CPP

For 2024, the contribution rate for CPP is 5.95% for each portion, which self-employed individuals must cover in full.

What if you have both employment and freelance income?

Many Canadians work a regular job while freelancing on the side. If you have both types of income, you'll receive a T4 from your employer and still need to complete Form T2125 for your freelance work.

Both income sources combine on your T1 personal tax return. Your employer will withhold taxes from your paycheque. You're responsible for setting aside money for taxes on your freelance earnings.

Record keeping and expense tracking

Good record-keeping helps you report income accurately and claim all eligible deductions. Staying organized throughout the year makes tax filing faster and less stressful.

Keep your finances in order with these practices:

• Track automatically: Use accounting software to record income and categorize expenses as they happen
• Separate accounts: Open a dedicated business bank account and credit card to keep business and personal spending apart
• Store receipts digitally: Snap photos of receipts with your phone and save them in a secure cloud folder or your accounting software

Tax forms for freelancers

Most freelancers need two main forms: Form T2125 to report business income and expenses, and the T1 general form for your personal tax return. The specific forms you need depend on your business structure.

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. You must report all of your income, whether or not you receive Form T4A from your 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. It determines your taxable business income by subtracting allowable expenses from your gross revenue.

Two types of freelancers use this form:

• Business income filers: These include most freelancers in trade, manufacturing, or services
• Professional income filers: These include regulated professionals such as doctors, lawyers, and accountants

Your completed T2125 shows your net business income, which determines:

• your federal and provincial income tax bracket
• your total tax owed for the year
• which deductions you can claim

If you operate more than one business, complete a separate T2125 for each.

For assistance in completing the form, use the CRA's T4002 guide.

Part 1

Part 1 collects your basic identification information:

• your name and business address
• your business name (if different from your personal name)
• your industry code and main product or service
• your 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'll 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'll have your gross profit or loss.

Part 4

Part 4 lists all allowable business expenses you can deduct. Common deductions include advertising, office supplies, bank charges, professional fees, and insurance.

Subtract your total expenses from your gross business or professional income. The result is your net income before adjustments.

Part 7

Part 7 calculates your final net income or loss. This section includes adjustments for personal use of business assets and other items that affect your final taxable income.

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.

Get one month free and see how Xero can help simplify your bookkeeping.

FAQs on freelance taxes in Canada

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

Do I need to register a business name to file freelance taxes?

No, you don't need to register a business name to file freelance taxes. You can operate under your personal name as a sole proprietor and report your income on Form T2125. However, if you want to use a business name different from your legal name, you may need to register it with your provincial or territorial government.

When are freelance taxes due in Canada?

Your T1 personal tax return, including Form T2125, is due by April 30 if you're employed or June 15 if you're self-employed. However, any taxes you owe must be paid by April 30 regardless of your filing deadline to avoid interest charges.

Can I deduct home office expenses as a freelancer?

Yes, you can deduct home office expenses if you use part of your home exclusively for business or to meet clients regularly. You can claim a portion of rent, utilities, insurance, and property taxes based on the percentage of your home used for business.

Do I need to charge GST/HST to my clients?

You must register for and charge GST/HST once your annual revenue exceeds $30,000 over four consecutive calendar quarters. Below this threshold, registration is optional. If you drive for a commercial rideshare company, you must register immediately regardless of your income level.

How do I make tax installment payments as a freelancer?

If you owe more than $3,000 in taxes for the current year and either of the two previous years, the CRA requires quarterly installment payments. These payments are due March 15, June 15, September 15, and December 15. You can pay online through your bank, by mail, or in person at your financial institution.