Tax and Finance Guide for Canadian Freelancers and Consultants

Surcon Mahoney Wealth Management

Helping Canadians build financial clarity and long‑term confidence through thoughtful guidance and personalized wealth strategies.

Meet the Team

Freelancing gives you freedom. You set your own hours. Pick your clients. Work from anywhere.

But here's what nobody tells you when you start: you're now running a business. That means handling everything an employer used to do for you. Taxes, retirement savings, insurance, CPP contributions. All of it lands on your desk.

About 2.6 million Canadians are self-employed, roughly 13% of the workforce. And every one of them faces this same reality. No automatic payroll deductions. No company pension waiting in the wings. Just you, figuring it out.

The good news? With the right approach, freelancers can build serious wealth. You just need to know the rules.

Key Takeaways

• Set aside 25 to 30% of every invoice for taxes and CPP. Without automatic deductions, this is the only way to avoid a brutal tax bill in April.
• Self-employed Canadians pay both employer and employee portions of CPP, roughly 11.9% of net self-employment income up to the annual maximum.
• Once your gross revenue exceeds $30,000 in any 12-month period, you must register for GST/HST and start charging sales tax on your services.
• Build an emergency fund covering 6 to 12 months of expenses. Freelance income fluctuates, and that cushion is what keeps you afloat during slow periods.

What Tax Obligations Do Canadian Freelancers Have?

All your freelance income is taxable. Every dollar. Unlike a regular job where your employer handles deductions, no taxes come off your payments automatically. You're responsible for estimating what you owe and making sure the money is there when April rolls around.

Canada's progressive tax system means your freelance income might push you into a higher bracket, especially if you also have employment income. That extra contract work? It gets taxed at your marginal rate. So the $5,000 project you just landed might only net you $3,250 after federal and provincial taxes.

Here's a practical rule: set aside 25 to 30% of every payment into a separate account the moment it hits your bank. This covers income tax, CPP, and any GST/HST you might owe. If you expect to owe more than $3,000 for the year, CRA will require quarterly installment payments on March 15, June 15, September 15, and December 15.

CPP is mandatory. Everyone aged 18 to 70 earning over $3,500 must contribute. As a freelancer, you pay both the employee and employer portions. That's roughly double what a traditional employee pays. Yes, it stings. But those contributions build your retirement benefits, and there's no getting around them.

Employment Insurance is different. It's optional for the self-employed. You can't collect regular EI if business slows down, but you can opt into special benefits like maternity leave or sickness benefits if you register and pay premiums. Worth considering if you're planning to start a family.

Do You Need to Register for GST/HST?

Once your gross revenue exceeds $30,000 in any 12-month period, you must register for GST/HST. This isn't optional. You'll need to charge sales tax on your services and remit it to the government.

The rate depends on your province. Alberta is 5% GST. Ontario is 13% HST. Nova Scotia is 15% HST. Saskatchewan and Manitoba have GST plus provincial PST. Make sure you understand what applies to your situation.

That tax you collect belongs to the government. Keep it separate. Spend it accidentally and you'll be scrambling to cover the bill when your GST return is due.

Below $30,000? You're considered a "small supplier" and registration is optional. Some freelancers register voluntarily anyway because it lets them claim input tax credits on business expenses.

How Should Freelancers Handle Budgeting and Cash Flow?

Irregular income is the defining challenge of self-employment. A great month followed by crickets. A big contract one year, then a drought the next. You need systems to handle this.

Start by figuring out your absolute minimum. Review at least two years of income records to identify your most and least profitable months. Know exactly what you need each month to cover essentials.

Then set up separate accounts:

• Business income account for all client payments
• Tax savings account where you transfer 30% immediately
• Personal spending account where you pay yourself a regular draw

This segregation prevents the classic freelancer mistake: spending money that's earmarked for CRA. One former freelancer admitted his biggest error was not putting money away for taxes. Big tax bills are hard to cover without preparation, especially if you've already spent those dollars.

Your emergency fund should cover 6 to 12 months of living expenses. That's higher than the standard 3 to 6 months recommended for employees. Freelance uncertainty demands a bigger cushion. Build it during the feast periods so it's there during the famine.

What Business Expenses Can You Deduct?

Every legitimate business expense reduces your taxable income. This is one of the few advantages freelancers have. Here's what you can typically claim:

Home office deduction. If you work from home, you can deduct a portion of your rent, utilities, insurance, and maintenance based on the square footage used exclusively for work. A home office that takes up 20% of your apartment means 20% of those costs are deductible.

Common deductible expenses include office supplies, computer equipment, software subscriptions, internet and cell phone bills (the business portion), marketing and advertising costs, professional development, accounting fees, and business insurance. Client meals are 50% deductible when they're genuinely for business purposes.

Large purchases like laptops or cameras fall under Capital Cost Allowance rules. You can't deduct the full amount in one year. Instead, you depreciate them over several years.

The key is documentation. Save every receipt. Be prepared to justify the business connection if CRA asks. Over-claiming personal expenses triggers audits and penalties. Stay honest. Claim what's legitimate.

How Do Freelancers Save for Retirement?

This is where most freelancers fall short. No company pension means retirement is entirely on you. And the numbers are sobering: 85% of Canadian freelancers worry about their retirement preparedness.

Government pensions help but aren't enough. CPP and OAS together might provide $1,500 to $2,000 per month at most. That's probably not the retirement you're envisioning.

RRSPs are a great tool. Contributions are tax-deductible, reducing what you owe now, and investments grow tax-deferred until withdrawal. Your contribution room is 18% of your previous year's earned income up to the annual maximum. Unused room carries forward.

This creates a powerful strategy: maximize contributions in high-income years when your tax bracket is highest, and the deduction saves you the most. Lean years? You can contribute less or nothing, then catch up later using accumulated room.

TFSAs complement RRSPs nicely. No tax deduction going in, but all growth and withdrawals are completely tax-free. This flexibility makes them perfect for funds you might need before retirement. Use both accounts strategically based on your income level and goals.

Many advisors recommend saving 15 to 20% of income for retirement when you're self-employed. That's higher than the 10% rule for employees because you're funding everything yourself. Start with whatever you can. Even 10% of each invoice builds momentum.

What Insurance Should Freelancers Consider?

Without employer benefits, insurance becomes your responsibility. Three types matter most:

Disability insurance might be the most critical. It replaces a portion of your income if illness or injury prevents you from working. Your earning ability is your greatest asset. Protect it accordingly.

Extended health insurance covers what provincial healthcare doesn't: prescription drugs, dental, vision, therapy. The cost of medications and dental work adds up fast without coverage.

Professional liability insurance (also called Errors and Omissions) protects you if a client alleges your work caused them harm. Consultants, designers, and writers face real exposure here. One lawsuit can wipe out years of earnings.

The Bottom Line

Freelancing demands financial discipline that traditional employment doesn't require. You're the CEO, CFO, and accounts payable department rolled into one. That's daunting. It's also manageable with the right systems.

Set aside your taxes immediately. Build a serious emergency fund. Claim every legitimate deduction. Max out your retirement accounts in good years. Get properly insured.

The freelancers who thrive treat their finances with the same professionalism they bring to client work. Your future self will thank you for the effort you put in today.

If the complexity feels overwhelming, a qualified accountant or financial planner can help. They understand self-employed situations and can tailor strategies to your specific needs. The goal is building wealth over time, not just surviving until the next invoice clears.