Start a business
Self-employment moves the tax bill from your employer to you. Plan for it before the first invoice.
Who it is forFreelancers, contractors and side-hustlers earning outside a payroll.
- 01
Price in double CPP
Employees pay 5.95%; the self-employed pay 11.90% because there is no employer to cover the other half. On maximum earnings that is roughly $8,068.
Do thisAdd the full CPP cost to your rate card before you quote anyone.
Self-employment taxBusiness - 02
Hold the CRA’s money separately
GST/HST you collect was never yours, and income tax is not withheld at source. One account, moved on every deposit, prevents the April problem.
Do thisTransfer the reserve percentage the moment each invoice is paid.
Tax reserveBusiness - 03
Check whether incorporating pays yet
A corporation earns the small-business rate on retained income, but costs a few thousand a year in accounting and filing. It pays once you leave money in the company.
Do thisCompare your personal marginal rate against the combined corporate rate at your actual profit.
IncorporationBusiness - 04
Set the salary and dividend mix
Salary creates RRSP room and CPP credits; dividends skip CPP but give up both. Most owners use a blend.
Do thisDecide the mix annually, with your accountant, against next year’s plan.
IncorporationBusiness - 05
Budget on variable income
Build the budget on your worst three months, not your best.
Do thisKeep six months of fixed costs in cash — business income is not a salary.
Budget plannerIncome & tax
The $30,000 line
Once revenue passes $30,000 in four consecutive quarters, GST/HST registration stops being optional. Voluntary registration below that can still pay off if you buy a lot of taxable inputs, because you can claim the credits.
Run it on your own numbersSelf-employment taxDouble CPP, GST/HST registration, and quarterly instalments.