Self-Employment Income

A self-employed individual (sole proprietor or partner) reports business or professional income on the personal return. The rules differ from employment in what can be deducted, when income is recognised, and how CPP, EI and tax are paid.

REPORTING

Form T2125, Statement of Business or Professional Activities, calculates net income, reported on lines 13500 to 14300.
Business income uses the accrual method (with limited exceptions for farmers and fishers), and the fiscal period is generally the calendar year.
Filing deadline: June 15; payment deadline: April 30.

DEDUCTIBLE EXPENSES

Any reasonable expense incurred to earn business income: advertising, supplies, rent, insurance, professional fees, telephone and internet, salaries, subcontractors, and interest.
Meals and entertainment: 50 percent deductible.
Vehicle: the business-use percentage of fuel, insurance, repairs, interest (capped) and capital cost allowance; a logbook is essential.
Business-use-of-home: a proportion of rent, utilities, insurance, property tax and mortgage interest if the space is the principal place of business or used exclusively for meeting clients; cannot create or increase a loss (excess carries forward).
Capital cost allowance (CCA): depreciation of equipment, computers and vehicles in classes with prescribed rates. Immediate expensing applies to certain eligible property, and the half-year rule limits the first year in other cases.
Not deductible: personal expenses, clothing (unless a uniform), fines and penalties, and the owner's own salary or drawings.

CPP AND EI

Both the employee and employer shares of CPP are paid: 11.9 percent on net earnings between $3,500 and $74,600 for 2026, plus 8 percent CPP2 up to $85,000.
Half of the base contribution is deducted, half credited; the full enhanced portion is deducted.
EI is optional and covers only special benefits (maternity, parental, sickness, caregiving) for those who register.

GST/HST

Registration is required once taxable revenue exceeds $30,000 in a single calendar quarter or over four consecutive quarters (the small supplier threshold). Voluntary registration lets businesses claim input tax credits.

INSTALMENTS

Because no tax is withheld, self-employed people must pay quarterly instalments if their net tax owing exceeds $3,000 in the current year and either of the two previous years.