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Business · 2026 rules

Tax reserve

Self-employed income arrives without deductions, which makes it feel larger than it is. This turns your year into a single percentage to hold back from every invoice, plus the sales tax that was never yours in the first place.

  • Reserve per invoice
  • GST/HST held in trust
  • Weekly set-aside
Your numberslive
Your year
$
$
Structure
Sales tax
Registered for HST
Calibration
+10%
+0%+10%+20%+30%
$

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Hold back from every invoice
26.2%
$1,308 out of a $5,000 invoice, into a separate account
Plus $650 of HST 13% on top of the invoice, which was never your money.
Annual reserve
$36,633
$33,303 of tax and CPP plus a 10% buffer
Set aside weekly
$704
$3,053 a month if you prefer monthly transfers
Sales tax to remit
$14,820
$18,200 collected less $3,380 of input credits

A single invoice, split three ways

Where each invoice belongs the moment it is paid
  • Yours to spend$3,692
  • Tax reserve$1,308
  • Sales tax held in trust$650
Invoice before sales tax$5,000
HST 13%Collected on top and remitted — it is not revenue$650
Total billed to the client$5,650
Tax reserve at 26.2%($1,308)
Sales tax set aside($650)
Available to the business$3,692

The year's obligation

Revenue$140,000
Expenses($26,000)
Net income$114,000
Federal tax$16,348
Provincial tax$8,095
CPP, both halvesPayable even in a year with no tax owing$8,860
Safety buffer at 10%$3,330
Total to reserve$36,633

Reserve by invoice size

What to hold back from invoices of different sizes
$0$2,448$4,896$7,344$9,792$1k$3k$5k$10k$25k
  • Tax reserve
  • Sales tax
$1,000 invoice$262 of tax reserve plus $130 of sales tax$392
$2,500 invoice$654 of tax reserve plus $325 of sales tax$979
$5,000 invoice$1,308 of tax reserve plus $650 of sales tax$1,958
$10,000 invoice$2,617 of tax reserve plus $1,300 of sales tax$3,917
$25,000 invoice$6,542 of tax reserve plus $3,250 of sales tax$9,792

When it has to be paid

Balance owing for the yearInterest runs from 1 May even though the return itself is due 15 June30 April
Income tax instalments15 March, 15 June, 15 September, 15 December$8,326 quarterly
Sales tax returnAnnual filers under $1.5M of revenue still make quarterly instalments if the net tax exceeds $3,000Quarterly or annual
Combined quarterly transferTax plus net sales tax, spread over four payments$12,031
Sales tax is held in trust, not earnedMoney collected as HST 13% belongs to the Crown from the moment it arrives. Spending it is the single most common way a healthy freelance business ends up owing more than it can pay, and the CRA has collection powers no ordinary creditor has.
Keep the reserve in a separate accountA high-interest savings account at the same bank, transferred the day each invoice is paid, is enough. The point is that the reserve is never visible in the account you spend from.
How this is calculated

For a sole proprietor the reserve is federal and provincial income tax plus both halves of CPP on net business income, divided by revenue to give a percentage of every invoice. For a corporation it uses an approximate combined small-business rate of 12.2%; the personal tax you pay on withdrawing that money is not included here.

Sales tax uses your province’s combined rate (HST 13%) on revenue, less input tax credits estimated as the same rate applied to your expenses. Real credits depend on which purchases carried recoverable tax, so the remittance figure is an estimate.

The buffer multiplies the whole obligation. Ten percent is a reasonable default: it covers a better year than forecast, a disallowed expense, or a rate change you had not planned for.

These results are illustrative estimates based on published 2026 rates and typical lender rules. They are not financial, tax, or legal advice, and they are not a mortgage or credit approval. See the methodology and disclaimer.

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