If you run an unincorporated business in Canada, whether you freelance, consult, drive, sell online or trade as a sole proprietor, the tax system treats your business profit as your personal income. There is no separate corporate return: your net earnings flow onto your personal T1 tax return, and you pay federal tax, provincial tax and Canada Pension Plan (CPP) contributions on them. This guide sets out the numbers that matter for the 2026 tax year and walks through a full worked example so you can estimate what you will owe.
Who is self-employed for tax purposes
You are self-employed if you carry on a business as a sole proprietor or as a partner in a partnership, rather than through a corporation. Your business income and expenses are reported on Form T2125 (Statement of Business or Professional Activities), which is filed as part of your personal return. The figure that matters is net income, that is, your gross revenue minus allowable business expenses. That net profit is the base for income tax and, above a small exemption, for CPP contributions.
Because tax is not deducted at source the way it is from an employee's paycheque, self-employed people are responsible for setting money aside and, once their bill is large enough, for paying tax in quarterly instalments during the year.
Federal income tax brackets for 2026
Federal brackets are indexed to inflation each year. For 2026 the Canada Revenue Agency applied an indexation factor of 2.0 percent. A notable change carried into 2026 is that the lowest federal rate has been cut from 15 percent to 14 percent. The federal basic personal amount, the slice of income you can earn before any federal tax applies, rises to $16,452 for individuals with net income up to $181,440.
| Taxable income (2026) | Federal rate |
|---|---|
| Up to $58,523 | 14.0% |
| $58,523 to $117,045 | 20.5% |
| $117,045 to $181,440 | 26.0% |
| $181,440 to $258,482 | 29.0% |
| Over $258,482 | 33.0% |
These are marginal rates. You only pay the higher rate on the portion of income that falls inside each band, not on your whole income.
Provincial tax: an Ontario example
On top of federal tax, every province and territory levies its own income tax with its own brackets and credits. Rates differ widely, so your total bill depends on where you live. To show how the layers stack, here are Ontario's 2026 brackets, indexed by 1.9 percent (the $150,000 and $220,000 thresholds are not indexed). Ontario's basic personal amount for 2026 is roughly $12,989.
| Taxable income (2026, Ontario) | Provincial rate |
|---|---|
| Up to $53,891 | 5.05% |
| $53,891 to $107,785 | 9.15% |
| $107,785 to $150,000 | 11.16% |
| $150,000 to $220,000 | 12.16% |
| Over $220,000 | 13.16% |
Ontario also charges a surtax on higher provincial tax amounts and an Ontario Health Premium of up to $900 a year, both calculated separately. If you live elsewhere, check your own province's brackets, because a resident of Alberta, Quebec or British Columbia will see a very different provincial line.
CPP contributions for the self-employed in 2026
This is the part that surprises most newly self-employed people. As an employee, you pay one half of CPP and your employer pays the other half. When you work for yourself, you are both employer and employee, so you pay both halves. For 2026 the combined self-employed rate is 11.9 percent on pensionable earnings up to the Year's Maximum Pensionable Earnings (YMPE), after a $3,500 basic exemption.
There is also a second tier, known as CPP2, on earnings between the YMPE and the Year's Additional Maximum Pensionable Earnings (YAMPE). Self-employed workers pay both halves of CPP2 as well, at a combined 8 percent.
| 2026 CPP figure | Amount |
|---|---|
| Basic exemption | $3,500 |
| Year's Maximum Pensionable Earnings (YMPE) | $74,600 |
| Year's Additional Maximum Pensionable Earnings (YAMPE) | $85,000 |
| Self-employed base rate (both halves) | 11.9% |
| Maximum base CPP contribution | $8,460.90 |
| Self-employed CPP2 rate (both halves) | 8.0% |
| Maximum CPP2 contribution | $832.00 |
| Maximum total CPP for the self-employed | $9,292.90 |
There is a silver lining. You can deduct one half of your total CPP contributions when working out your net income, and claim the other half (on the base amount) as a non-refundable tax credit. So the full CPP bill is not lost to you: part of it lowers your income tax, and all of it builds your future pension.
GST/HST and the $30,000 threshold
GST/HST is separate from income tax. You are considered a small supplier, and are not required to register or charge GST/HST, as long as your worldwide taxable revenue stays at or under $30,000 over four consecutive calendar quarters. This $30,000 figure has been fixed since 1991 and has not changed for 2026.
Once you cross $30,000, you must register and begin charging the tax. If a single sale pushes you over $30,000 within one calendar quarter, you stop being a small supplier immediately on that sale. If you creep over the limit across a rolling year without exceeding it in any one quarter, you generally have a short grace period before registration is required. Many freelancers register voluntarily before hitting the threshold, because registration lets you claim input tax credits on the GST/HST you pay on business costs.
A worked example
Take Priya, a self-employed graphic designer living in Ontario, with net business income of $80,000 in 2026 after expenses. Here is how her main obligations break down.
CPP contributions. Base: ($74,600 minus $3,500) equals $71,100, taxed at 11.9 percent, giving $8,460.90. CPP2: ($80,000 minus $74,600) equals $5,400, taxed at 8 percent, giving $432.00. Her total CPP is $8,892.90. Half of that, about $4,446, is deductible from income, so her taxable income falls to roughly $75,554.
Federal income tax. 14 percent on the first $58,523 is $8,193, plus 20.5 percent on the next $17,031 is $3,491, a subtotal of $11,684. Subtract the basic personal amount credit (14 percent of $16,452, about $2,303) and her federal tax is roughly $9,381.
Ontario income tax. 5.05 percent on the first $53,891 is $2,722, plus 9.15 percent on the next $21,663 is $1,982, a subtotal of $4,704. After the Ontario basic personal amount credit of about $656, her provincial tax is roughly $4,048, before the small Ontario Health Premium.
Adding it up, Priya owes about $9,381 federal tax, $4,048 Ontario tax and $8,893 in CPP, a combined total near $22,300 on $80,000 of profit. That is an effective take of about 28 percent once CPP is included, which is why setting aside roughly 30 percent of each payment is a sensible habit. Her income is under $30,000 nowhere near true, so she is well above the small supplier line and must charge HST on her invoices.
Deadlines and instalments
Self-employed individuals and their spouses have until June 15 to file the T1 return, but any balance of tax owing is still due by April 30. If your net tax owing is more than $3,000 (or $1,800 in Quebec) in the current year and in one of the two previous years, the CRA will ask you to pay by quarterly instalments on March 15, June 15, September 15 and December 15. Interest applies to late balances and missed instalments, so plan cash flow around these dates.
Closing note
The figures above are drawn from official 2026 CRA and provincial sources and are current at the time of writing, but tax is a Your Money, Your Life subject where a wrong number has a real cost. Rates and thresholds change, provincial taxes vary by where you live, and your own situation may include credits or deductions not covered here. Treat this guide as a planning estimate, run your numbers through the Canada calculators below, and confirm anything binding with a licensed Canadian accountant before you file.