Independent Contractor Taxes in Canada
As a sole proprietor or self-employed individual, your business income is reported on your personal tax return (T1) along with a T2125 Statement.
🎯
Key Takeaways
- Contractors are responsible for their own taxes
- No employer deductions—you must remit CPP and income tax
- Track all business expenses for deductions
- GST/HST registration required over $30,000 revenue
Employee vs Contractor
Unlike employees, independent contractors are self-employed. This means no one deducts CPP, EI, or income tax from your pay—you're responsible for managing your own taxes.
Tax Obligations
- Pay both employer and employee portions of CPP
- Self-employed are exempt from EI (can opt in)
- File T1 with Schedule T2125 (Business Income)
- Make quarterly instalment payments if owing $3,000+
Common Deductions for Contractors
- Home office expenses
- Vehicle/mileage for business travel
- Equipment and supplies
- Professional development and training
- Insurance premiums
- Phone, internet, software
Misclassification Risk
CRA scrutinizes contractor relationships. If you work like an employee (set hours, single client, no equipment), you may be reclassified with costly consequences.
Set Aside for Taxes
As a contractor, set aside 25-30% of every payment for taxes.
Contractor Tax Help
Tax Punjabi can help you maximize deductions and stay compliant.