What a self-employed person owes
If you run a business as a sole proprietor in Canada, your net business income goes on your personal return and three things are charged on it:
- Federal income tax, on taxable income above your credits.
- Provincial or territorial income tax, on the same income at your province’s rates (Quebec runs its own return).
- Canada Pension Plan contributions on your self-employment earnings, at double the employee rate because you are both employee and employer. Quebec residents pay the Quebec Pension Plan instead.
For the 2026 tax year, any balance owing is due by 30 April 2027. Your return can be filed as late as 15 June 2027 because you are self-employed, but interest runs on unpaid tax from 30 April.
CPP: paying both halves
For 2026, CPP applies to earnings between a $3,500 basic exemption and the $74,600 year’s maximum pensionable earnings, at 5.95% each for employee and employer. A self-employed person pays both: 11.9%, to a maximum of $8,460.90.
Above that, the second additional contribution, CPP2, applies to earnings between $74,600 and $85,000, at 4% each side: 8% for a self-employed person, to a maximum of $832.
The contributions are not all a pure cost. The employer-equivalent half, the enhanced part of the employee half and all of CPP2 are deducted from income. The rest of the employee half earns a non-refundable credit at the lowest federal rate.
Federal rates for 2026
| Taxable income | Rate |
|---|---|
| Up to $58,523 | 14% |
| $58,523 – $117,045 | 20.5% |
| $117,045 – $181,440 | 26% |
| $181,440 – $258,482 | 29% |
| Over $258,482 | 33% |
The lowest rate is 14% for 2026, down from 15%. The basic personal amount is $16,452, reducing to $14,829 for taxable income above $181,440. Credits are worth their amount times 14%.
Worked example: $80,000 of profit
A sole proprietor with $80,000 of 2026 net business income and no other income
| 2026 | Amount |
|---|---|
| CPP: ($74,600 − $3,500) × 11.9% | $8,460.90 |
| CPP2: ($80,000 − $74,600) × 8% | $432.00 |
| Deductible part of CPP and CPP2 | $5,373.42 |
| Taxable income: $80,000 − $5,373.42 | $74,626.58 |
| Federal tax before credits | $11,494.45 |
| Credits: ($16,452 + $3,519.48 CPP) × 14% | −$2,796.01 |
| Federal income tax | $8,698.45 |
| Federal tax + CPP + CPP2 | $17,591.35 |
That is 22.0% of profit before provincial tax. Provincial tax on the same income adds roughly another 5–10% of profit depending on the province, so a reserve of around 27–32% of profit is a sensible starting range until you have worked out your own province’s figure.
Reserve on profit, not on invoices: if costs run at 20% of what you bill, apply the rate to the other 80%. If you are registered for GST/HST, that is a separate pot entirely, because none of it was ever yours.
CRA instalments and due dates
Once a year’s tax is large enough, the CRA does not wait for the return. You must pay instalments if your net tax owing is more than $3,000 ($1,800 in Quebec) in the current year and in either of the two previous years. Instalments cover income tax and the CPP contributions on your self-employment earnings.
- Due on 15 March, 15 June, 15 September and 15 December.
- The CRA sends reminders with suggested amounts based on earlier years. Paying those amounts on time protects you from instalment interest even if the final bill is higher.
- In the example, a quarter of $17,591.35 plus provincial tax would be over $4,400 a quarter.
The squeeze comes in the first years: you pay the balance for one year on 30 April while instalments for the next year are already falling due. A reserve that only covers last year’s bill is short by the next instalment.
What this leaves out
- Provincial tax and credits, including Ontario’s surtax and health premium, which can add materially at higher incomes.
- Employment income. A salary uses up CPP and the lower brackets first.
- RRSP contributions, home office and vehicle expenses, and capital cost allowance, all of which reduce taxable income.
- Incorporating is a different calculation altogether.
- Quebec has its own return, QPP at 12.8% and QPIP.
The routine for doing this on every payment is in reserving tax on irregular income. CashDesk works out federal tax, CPP and CPP2 and your province’s tax for all thirteen provinces and territories, and shows the next CRA instalment and its date under the reserve. It prepares figures; it does not file anything or give tax advice.