How is self-employment income taxed in Ontario?

Self-employment income from a sole proprietorship or freelance work is reported on your personal T1 return, not a corporate tax return. You report gross income and deduct allowable business expenses to arrive at net business income, which is then taxed at both federal and Ontario provincial rates as part of your total income.

As a self-employed person, you are also responsible for both the employee and employer shares of Canada Pension Plan (CPP) contributions on your net self-employment earnings — a significant cost that employees split with their employer. You are not required to pay Employment Insurance (EI) premiums unless you opt in for access to special EI benefits.

Ontario does not have a separate provincial business income tax for sole proprietors — your business profit flows directly into your personal income. Allowable deductions include a portion of home-office expenses if you work from home, vehicle expenses for business use, professional fees, and advertising costs, among others. Keeping meticulous records is essential because the CRA may audit business expenses. If your business grows, incorporating can shift income into a corporation taxed at a lower small-business rate, which may be worth exploring with a tax professional.