Tax Returns for the Self-Employed

If you freelance, contract or run a small business on your own, that income goes on your personal return, with an extra form that shows the business side. You get more time to file than an employee does, but not more time to pay.

Reporting it on Form T2125

A sole proprietor reports business or professional income and expenses on Form T2125, Statement of Business or Professional Activities. It works out your gross income and your net income or loss, and those figures carry onto your T1 return. If you have both business and professional income, or more than one business, each one gets its own T2125.

The CRA treats an activity as a business when you intend to carry it on for profit and there's evidence to back that up. Self-employed people generally have to use a December 31 year end.

When it's due

The June 15 filing date also covers a spouse or common-law partner who lived with you at any time in the year. There's a narrow exception: if the business spending is mainly the cost of tax shelter investments, the return is due April 30. Anything you owe still has to be paid by April 30 to avoid interest.

CPP on both sides

An employee pays half of their CPP contributions and the employer pays the other half. When you're self-employed, you pay the whole contribution, based on your net business income after expenses.

• For 2026: 11.9% on earnings between $3,500 and $74,600, to a maximum of $8,460.90. On earnings between $74,600 and $85,000 there's a second additional contribution (CPP2) at 8%, to a maximum of $832.
• For 2025 (the return filed in 2026): the same 11.9% rate on earnings between $3,500 and $71,300, to a maximum of $8,068.20, plus CPP2 at 8% between $71,300 and $81,200, to a maximum of $792.

You calculate it on Schedule 8, and the result feeds both a deduction on line 22200 and a non-refundable credit on line 31000. One of our Ask Clint answers covers how much to set aside from contract work.

Instalments

No one is taking tax off your business income as you earn it. You may have to pay instalments for 2026 if your net tax owing is more than $3,000 for 2026 and in either 2025 or 2024. In most cases the CRA sends a reminder with an amount it has worked out for you, and you can see reminders in My Account. Missing or short payments can bring interest and a penalty. Our post on CRA instalments goes into the options.

Business expenses versus personal ones

As a rule you can deduct any reasonable current expense you incur to earn business income. You can't deduct personal expenses, so when something is used for both, only the business part goes on the T2125. You also can't write off the cost of capital property, like equipment or a vehicle, as an ordinary expense. That goes through capital cost allowance instead, which our post on capital purchases and CCA explains.

• Home office. You can claim business-use-of-home expenses if the space is your principal place of business, or if you use it only for the business and regularly meet clients, customers or patients there. You claim part of costs like heat, electricity, home insurance, property taxes and mortgage interest, worked out on a reasonable basis such as the workspace's share of the home's floor area. These expenses can't create or increase a business loss. Any amount you can't use carries forward to the next year.
• Vehicle. You can deduct the costs of running a vehicle you use to earn business income, as long as they're reasonable and backed by receipts. Keep a logbook of each business trip (date, destination, purpose and kilometres) and record the odometer at the start and end of the year. Once you've kept a full logbook for one base year, later years can use a three-month sample logbook, as long as your business use stays within 10% of the base year.

Records and GST/HST

You're required by law to keep records that support your income and expenses, generally for at least six years from the end of the last tax year they relate to. Keep deposit slips, bank statements and cancelled cheques, and keep separate records for each business. If your books have fallen behind, see catch-up bookkeeping.

You generally have to register for GST/HST once your worldwide taxable revenues (including those of associates) go over $30,000 in a single calendar quarter or over four consecutive calendar quarters. Our GST filing post covers registering and filing.

How we help

Self-employment goes on your personal return, but it takes extra work, so it's quoted on top of the base price and you get the number before any work starts. We sort out what counts as a business expense and what doesn't, and keep the paperwork behind it tidy enough to defend. If you're filing GST, PST or payroll every month or quarter, ask about our bookkeeping service as well.