How the Self-Employed Are Taxed in Ontario: A Plain-Language Guide

If you recently left an employer and started working for yourself — or you picked up freelance clients on the side — the question of how self-employed income is taxed in Ontario is probably on your mind. The good news is that the system is not fundamentally different from employment income; the key difference is that nobody withholds tax for you, and you get to deduct legitimate business expenses first.

This article walks you through the mechanics: what counts as self-employment income, how net income is calculated, which rates apply, and what obligations kick in beyond income tax. We recommend working with an accountant for your actual filing — this is the conceptual roadmap, not a tax return.

What Counts as Self-Employment Income?

The Canada Revenue Agency (CRA) treats you as self-employed when you earn income from carrying on a business or profession — even part-time — without the protection of an employment contract. Common situations include:

• Freelancers and consultants of any discipline
• Tradespeople working under their own name
• Professionals (accountants, therapists, designers) in private practice
• Landlords operating a rental business (as opposed to passive rental)
• Gig-platform workers (ride-share, delivery, task-based apps)

If you are genuinely self-employed (as opposed to a misclassified employee — a separate issue), your income goes on the T1 General personal return, Schedule T2125 "Statement of Business or Professional Activities."

Net Business Income: Revenue Minus Expenses

You are not taxed on your gross revenue. You are taxed on your net business income — what remains after deducting allowable business expenses. Common deductible categories include:

• Office supplies and software used for business
• Professional dues and subscriptions related to your work
• Home-office expenses (a portion of rent/mortgage interest, utilities, internet — see the home-office article in this series)
• Vehicle expenses for business travel (a proportion based on business vs. personal kilometres)
• Advertising and marketing costs
• Accounting and legal fees for the business

The Income Tax Act sets out which expenses are deductible and the rules that limit certain categories (home office, meals, entertainment, and vehicle expenses all have restrictions). An accountant will help you apply these correctly.

Income Tax: Federal + Ontario Rates

Canada uses a graduated (progressive) marginal rate system. Both the federal government and Ontario levy income tax on your net income — the two are calculated separately and added together.

At the federal level, the lowest bracket is taxed at the lowest rate; each higher bracket applies only to dollars above that threshold. Ontario's provincial rates layer on top. As of writing, the combined federal-plus-Ontario top marginal rate on ordinary income exceeds 50%; the lowest combined rate is roughly 20-25% — confirm current brackets with the CRA or a tax professional before filing.

Unlike an employee, you do not have an employer splitting Canada Pension Plan (CPP) contributions with you. You pay the full self-employed CPP contribution rate on net earnings (up to the maximum annual pensionable earnings — confirm the current ceiling with the CRA). This CPP contribution is calculated on Schedule 8 and is partly deductible from income.

The T1 Filing Deadline — and Why It Differs

Most Canadians file their T1 by April 30. If you or your spouse/common-law partner carried on a business, your filing deadline extends to June 15 — as of writing, confirm with CRA. However — and this trips people up — any balance owing is still due by April 30. Missing the April 30 payment date means interest starts accumulating even if your June 15 return is on time.

Quarterly Instalments

Because no employer withholds tax at source, the CRA expects most self-employed people with net tax owing above a threshold to pay quarterly tax instalments throughout the year (March, June, September, December — confirm current due dates with CRA). Owing a large amount on filing and having skipped instalments can trigger interest charges. We have a separate article in this series specifically on instalments.

Provincial Business Registration

Operating a sole proprietorship in Ontario under your own legal name generally does not require registration. If you trade under any other name, the Business Names Act requires registration with ServiceOntario. This is not a tax obligation per se, but it affects how you invoice clients and open a business bank account.

HST/GST: A Separate Layer

Income tax is one obligation; HST collection is another. Once your taxable supplies exceed the small-supplier threshold (as of writing — verify current amount with the CRA), you must register for, charge, collect, and remit HST to the CRA. Failing to register on time leads to penalties. We cover this in depth in our separate HST registration article.

Frequently asked questions