When you transition from employment to self-employment, your tax situation changes significantly. You'll need to report your business income on your tax return, pay CPP contributions at both the employee and employer rate, track deductible business expenses, and may be required to register for GST/HST if your revenue exceeds the threshold. Unlike salaried employees, self-employed individuals don't have taxes withheld from their income, so understanding your tax obligations from the start helps you stay compliant and avoid surprises at tax time. When you work for yourself, you're responsible for reporting all business income on line 10400 of your tax return. This income gets added to any other income you earn (like investment income or rental income), and you'll pay tax on your total combined income at your marginal tax rate. Unlike employment income where your employer withholds taxes, self-employment requires you to set money aside throughout the year. Using the Self-Employed Tax Estimator can help you calculate roughly how much tax you'll owe so you can plan ahead and avoid a large bill when you file. One major advantage of self-employment is the ability to claim business expenses that reduce your taxable income.
You must register if your business income exceeds $30,000 over any four consecutive calendar quarters. Below that threshold, registration is optional but may be beneficial if you purchase supplies with GST/HST, since you can claim those back once registered.
Gross income is your total revenue before expenses. Net income is what's left after you deduct all eligible business expenses. The CRA taxes your net income, not your gross, which is why tracking deductions is crucial.
Yes, if you use part of your home exclusively and regularly for business purposes, this CRA rule may apply to you. You can use either a simplified method (flat rate per square foot) or a detailed method tracking actual expenses like rent, utilities, and property tax proportional to your office space.
No, self-employed individuals don't pay EI automatically. However, you can voluntarily register for EI coverage within specific timeframes if you want access to benefits, though this involves additional contributions.
A common guideline is 20-30% of your monthly net profit, though the exact amount depends on your marginal tax rate, province, and whether you have other income. Using the [Self-Employed Tax Estimator](/tools/self-employed-estimator) gives you a personalized calculation based on your projected income.