Self-Employment Tax Calculator

Self-Employment vs Employment: Key Tax Differences

When you are self-employed in Canada, your tax obligations differ significantly from those of a regular employee. The biggest difference is that you are responsible for paying both the employee and employer portions of Canada Pension Plan (CPP) contributions, and you must remit your own income tax through quarterly installments rather than having it deducted at source.

CPP for Self-Employed (2024)

Self-employed individuals pay both the employee and employer portions of CPP. For 2024:

• CPP rate: 5.95% each for employee and employer = 11.90% total for self-employed
• Basic exemption: $3,500 (first $3,500 of net self-employment income is exempt)
• Maximum pensionable earnings: $68,500
• Maximum employee contribution: $3,867.50
• Maximum self-employed contribution: $7,735.00 (2 x $3,867.50)
• Tax deduction: The employer-equivalent half of your CPP is deductible from income

Employment Insurance (EI)

Self-employed individuals are not required to pay EI premiums. However, you can voluntarily opt in to receive EI special benefits (maternity, parental, sickness, compassionate care, and family caregiver benefits). If you opt in, you pay only the employee portion (1.66% of insurable earnings, max $1,049.12 for 2024).

HST/GST Registration Threshold

You must register for HST/GST if your total revenue exceeds $30,000 in any four consecutive calendar quarters (or in a single quarter). Key points:

• Threshold: $30,000 in revenue (not profit) in 4 consecutive quarters
• Voluntary registration: You can register even below the threshold to claim Input Tax Credits
• Filing frequency: Annual, quarterly, or monthly depending on revenue
• Quick Method: Simplified HST calculation available for businesses under $400,000 revenue

Common Business Deductions

Self-employed Canadians can deduct legitimate business expenses to reduce their net business income:

• Home office: Percentage of rent/mortgage interest, utilities, insurance, property tax
• Vehicle: Business-use percentage of gas, insurance, maintenance, depreciation (CCA)
• Office supplies: Computer equipment, software, stationery, postage
• Professional fees: Accountant, lawyer, bookkeeping services
• Advertising & marketing: Website, business cards, online ads
• Travel: Business-related travel, meals (50% deductible), accommodation
• Insurance: Business liability, professional liability, errors & omissions
• Subcontractors: Payments to freelancers or contractors you hire

Filing Deadlines

• Tax return deadline: June 15 for self-employed individuals (and their spouses)
• Tax owing deadline: April 30 (even though the return is due June 15, any balance owing is due April 30)
• Quarterly installments: March 15, June 15, September 15, December 15
• HST/GST filing: Depends on your reporting period (annual: 3 months after fiscal year end)

Incorporation vs Sole Proprietorship

Many self-employed Canadians consider incorporating once their net income exceeds approximately $50,000-$75,000. Benefits of incorporation include:

• Small business tax rate: First $500,000 of active business income taxed at ~12.2% (combined federal/provincial, varies by province)
• Income splitting: Potential to pay dividends to family members (subject to TOSI rules)
• Tax deferral: Leave profits in the corporation at a lower rate
• Liability protection: Personal assets separated from business
• Costs: Legal fees (~$1,000-$2,500 to incorporate), annual filing requirements, separate tax return

However, incorporation adds complexity and costs. Consult an accountant to determine if incorporation makes sense for your situation.

Quarterly Installments

If your net tax owing exceeds $3,000 in the current year and in either of the two preceding years, CRA will require you to make quarterly tax installments. The installment amounts can be calculated using one of three methods:

• Current year method: Based on your estimated current year tax
• Prior year method: Based on last year's actual tax owing
• CRA suggestion: Based on the amounts CRA calculates from your prior returns