Tax & Accounting Services

Self-employed taxes – how they work

Self-employed taxes – how they work

Net self-employed income is reported on your personal income tax return on line 135 for Business income or line 137 for Professional income. Net self-employed income is reported on your personal income tax return on line 135 for Business income. Revenue and expenses are summarized on Canada Revenue Agency’s form T2125 Statement of Business or Professional Activities.

The amount of income tax you pay on your self-employed net income depends on what tax bracket you are in. For example, for net income of $30,000 in Ontario, the income tax would be $3,600, for $60,000 it would be $12,300.

In addition to income tax, you will have to pay Canada Pension Plan contributions on your net self-employed income. CPP contributions work out to about 9% of your net self-employed income.

You may also have to register for HST. Generally, if your revenue exceeds $30,000 in one calendar quarter or if your revenue exceeds $30,000 in four consecutive calendar quarters you must register for HST. For more information, go to CRA’s website, www.cra.gc.ca, and search “HST for businesses”.

The due dates for your personal tax return and HST return is June 15, however any balance owing for either income taxes or HST is due April 30.

For both income taxes and HST, if your amount owing exceeds $3,000, CRA will require that you make instalments to apply to taxes for the following tax year. For example, if your net HST was $4,000 for 2016, you will have to make instalments of $4,000 that will be applied to your HST for 2017. Income tax instalments are due March 15, June 15, September 15 and December 15. HST instalments are due April 30, July 31, October 31 and January 31.

It is a good idea to estimate how much taxes you will owe for the year, and then calculate what percentage of gross revenue you need to set aside for income taxes and HST. For instance, if you earn gross income of $75,000, and your net income is $60,000, the income tax and CPP owing will be $15,800. The amount of HST is estimated at $7,200. Your total taxes are $23,000, or 31% of your gross income.