How self-employment is taxed in Ontario
Yan Zhou (周艳) · Licensed Life & Health Insurance Agent, Financial Services Regulatory Authority of Ontario (FSRA)
The short version
- If you earn money in your own name without a corporation, you are self-employed. You file a T2125 with your personal return.
- You pay both halves of CPP. For the 2026 tax year that is up to $8,460.90, against $4,230.45 for an employee.
- Your return is due 15 June, but any tax you owe is still due 30 April.
- An expense is deductible if you incurred it to earn the income. Mixed-use costs get split by the business share.
If something here applies to you, just ask me. Plain answers, no sales pitch.
(General tax information only. It is not tax advice. Circumstances differ — check the CRA website or speak to a qualified accountant before you act.)
Who counts as self-employed?
Anyone earning business income in their own name, without having incorporated.
That covers far more people than “I run a shop”. Contractors, online sellers, real estate agents, personal trainers, trades, Airbnb hosts, rideshare and delivery drivers, and anyone making money from content.
It also covers side work. If you have a T4 job and take on contracts in the evenings, that second stream is self-employment income.
Self-employment carries unlimited liability. A business debt can reach your personal assets. That is the sharpest difference between this and a corporation.
Which form?
The T2125, Statement of Business or Professional Activities.
It is not a separate return. It sits inside your personal one. Gross revenue minus costs and expenses gives net income, and that net figure joins the rest of your income for the year.
So there is no such thing as “corporate tax” for a sole proprietor. You pay personal tax.
The CPP bill is the part people miss
An employee splits CPP with their employer. When you are self-employed you are the employer, so you pay both halves.
| Tax year | Maximum pensionable earnings | Basic exemption | Rate | Maximum if self-employed |
|---|---|---|---|---|
| 2026 | $74,600 | $3,500 | 5.95% | $8,460.90 |
| 2025 | $71,300 | $3,500 | 5.95% | $8,068.20 |
An employee on the same income pays at most $4,230.45 in 2026. The employer covers the rest.
The gap: $8,460.90 − $4,230.45 = $4,230.45. That is real cash you need on hand at filing time.
The employer half is deductible against your income, so it is not simply lost. But it still has to be paid.
Source: CRA, “CPP contribution rates, maximums and exemptions”, checked 11 August 2026.
Two deadlines, not one
Self-employed people can file up to 15 June. Your spouse gets the same extension.
Any balance owing is still due 30 April. Interest starts the day after.
The extra six weeks are for paperwork, not for owing money. This one costs people interest every year.
What can you deduct?
One test: did you spend it to earn the income?
Common ones are advertising, licences and dues, office supplies, accounting and legal fees, business insurance, bank charges, and payments to subcontractors.
Anything used for both business and personal life gets split by the business share. Your car, your phone, and a room at home all fall into this.
Home office is calculated on the share of floor area used for work, applied to utilities, property tax or rent. Unlike an employee, you do not need a signed T2200.
Meals and entertainment are deductible at 50%. That one gets miscalculated more than any other.
When do you need a GST/HST number?
Once your taxable sales pass $30,000 you are no longer a small supplier and registration is mandatory.
Two tests, whichever comes first: any single calendar quarter over $30,000, or four consecutive quarters over $30,000 in total.
CRA’s own wording: “You have to register within 29 days after you make a sale other than as a small supplier.”
More detail in Do I need to register for GST/HST?
Source: CRA, “When to register for and start charging the GST/HST”, checked 11 August 2026.
Three things worth doing now
- Open a separate bank account so business money and personal money never mix. It halves the work at year end.
- File receipts monthly. CRA expects you to keep records for six years.
- If you owed enough tax last year, you may have to pay by instalments this year. Do not throw away the CRA notice.
Wondering whether to incorporate? That depends on how much you can leave in the company, not on what you earn. See Salary or dividends.
If something here applies to you, just ask me. Plain answers, no sales pitch.
(General tax information only. It is not tax advice. Circumstances differ — check the CRA website or speak to a qualified accountant before you act.)
