How are sole proprietors taxed in Canada?

There is no separate business tax rate. Your net business income (revenue minus expenses) is added to your personal income and taxed at the same federal and provincial rates as a salary. You report it on the T2125 form with your personal T1 return.

Why do self-employed people pay double CPP?

Employees split CPP with their employer — each pays 5.95%. A self-employed person is both employer and employee, so they pay both halves: 11.9% on net business income between $3,500 and $74,600, up to $8,460.90 for 2026, plus CPP2. Half of it is deductible from income.

Do self-employed Canadians pay EI?

EI is optional for the self-employed. You can opt in to access special benefits (maternity, parental, sickness) by registering with the Canada Employment Insurance Commission, then you pay the employee premium rate. Most don't, so this tool leaves it off by default.

Canada · 2026 tax year

Canada Self-Employed Tax Calculator

For sole proprietors and freelancers. Your net business income is taxed at the same federal and provincial rates as a salary — but you pay both halves of CPP. See the full picture, by province.

Your business

Business income (revenue)

Business expenses

Net business income$0

Province

Other income & options

Other taxable income Employment or pension income, taxed alongside

RRSP contribution Deducted from taxable income

I've opted in to EI for self-employed

After-tax income

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— goes to tax & CPP

Keep – Income tax – CPP/QPP –

Net business income$0

CPP (both halves)$0

Income tax (federal + provincial)$0

After-tax income$0

Total to CRA

CPP/QPP

Average rate

Marginal rate

How self-employment tax works in Canada

There's no separate "business tax" for a sole proprietor. You total your revenue, subtract legitimate expenses, and the net business income is added to your personal return (form T2125) and taxed at the ordinary federal and provincial rates — exactly like a salary. The difference is what happens with the Canada Pension Plan.

Both halves of CPP

An employee pays 5.95% into CPP and their employer matches it. When you work for yourself, you are the employer — so you pay both halves, 11.9% on net income between $3,500 and $74,600 (up to $8,460.90 for 2026), plus CPP2 above that. It stings, but half of it is deductible from your income, softening the blow. In Quebec the equivalent is the QPP at 12.6%.

EI is optional

Unlike employees, you don't automatically pay Employment Insurance. You can opt in to access maternity, parental and sickness benefits, but most sole proprietors don't — so it's off by default here. Toggle it on to see the premium.

Frequently asked questions

What expenses can I deduct?

Reasonable costs incurred to earn business income — home-office portion, supplies, software, professional fees, vehicle costs for business use, and more. This tool takes your total expense figure; keep records and receipts for the CRA. Capital purchases are deducted over time as capital cost allowance.

Should I incorporate instead?

Incorporating can defer tax by leaving profit in the company at the low small-business rate (around 12% combined), but it adds cost and complexity, and money you take out is taxed again personally. It usually makes sense once you're earning well above what you need to live on. Compare with the corporation tax calculator.

How much should I set aside for tax?

A common rule of thumb is 25–30% of net income, but it depends on your bracket and province. This calculator gives you the actual combined figure — use the "total to CRA" stat as your set-aside target, and remember you may owe quarterly instalments.

The incorporated path

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US self-employed

SE tax + income tax

Educational estimate — not tax advice. Canada 2026 tax year. Net business income is taxed at combined federal + provincial rates (federal 14% / 20.5% / 26% / 29% / 33%; provincial/territorial brackets and basic personal amounts for all 10 provinces and 3 territories; Ontario surtax included; Quebec applies the 16.5% federal abatement and is approximate). Self-employed CPP is 11.9% on net income between $3,500 and $74,600 (max $8,460.90) plus CPP2 at 8% to $85,000 (max $832); Quebec QPP is 12.6% (max $8,958.60) plus QPP2. Half of CPP/QPP is applied as a deduction against income. EI is optional (employee rate when opted in). It excludes capital cost allowance scheduling, GST/HST (registration required over $30,000 of revenue), the home-office detail, instalment timing, and other credits. Confirm with the CRA or an accountant.