Self Employed Tax Deductions in Canada

Self Employed Tax Deductions in Canada

Tax season is upon us, and it’s hardly an event that people anticipate with pleasure. Despite the headache, filing taxes is a straightforward process, and you can do it on your own. If you are self-employed, there are specific rules, expenses, and deductions that apply to you per the Income Tax Act (ITA). Knowing what expenses and deductions you can include on your taxes can save you money and problems down the line.

Tax deductions on expenses during the year help decrease your annual expenditures, and there are several purchases that you can write off. However, you cannot claim everything you spend as a deduction, so it’s essential to know what expenses are eligible.

Always make sure that the expenses you claim are for business expenditures only and don’t include personal items and services. Ultimately, the Canada Revenue Agency makes the final decision when determining whether your application meets approval guidelines.

The golden rule to follow is that expenses must be necessary to earn business income, and they must be reasonable. Always aim for accuracy and gather your receipts and expense information before you start.

Before filing, check our self-employed tax-deductible expenses list. It contains all you need to know when it comes to write-offs for the self-employed in Canada.

Table of Contents

How Much Do I Need to Set Aside for Taxes Every Year?

You cannot know the exact dollar amount of taxes that you will pay every year, even if you are using software to track expenses. Despite this, you can still make a rough estimate of your payments and the percentage you should set aside.


Remember that you must disclose all of your income on your tax returns. Failure to do so can get you into legal trouble.

What Can I Claim on My Taxes if I am Self-Employed in Canada?

Everything that you pay for starting and running your business is a business expense. Since you are self-employed, you can claim these expenses as deductions on your tax return.


Make sure that you have a thorough understanding of what each one entails. For example, communications expenses, such as a phone or internet connection, must only be for business use.

Expenses That Self-Employed Business Owners Often Miss

You could potentially save hundreds of dollars on costs that you didn’t know that you can deduct. There are many to keep in mind before you file your taxes. Some examples include:


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Record Keeping and Expense Tracking

As you can see from the list of self-employed tax deductions in Canada, there are plenty of expenses that you can write off as deductions. However, even if your costs are all correct, your tax return may trigger an audit. It is in these scenarios where record-keeping and expense tracking come in.

Record keeping makes sense for several reasons. Primarily, you monitor the flow of money that comes in and goes out, and you also keep auditors at bay. You must be able to verify every expense that you file on your return. Failure to do so can mean legal trouble and a penalty or fine.

You can keep a record of your expenses and track them through the use of bookkeeping software. Nowadays, there are many options for business owners and those who are self-employed. Not only are they user-friendly, but they are also cost-efficient.

You can use record-keeping software that exports your information to tax software or programs that you use to file, as well. One example of this is QuickBooks that you can use to upload your expenses to Turbo Tax.

Although you may not need software to track your expenses, always ensure that you maintain records of every receipt and payment.

The Canadian Pension Plan

If you are a Canadian between the ages of 18 – 70 and make more than $3,500 annually, you must contribute to the Canadian Pension Plan. The CPP replaces some of your income once you retire, and is a good investment for you and fellow citizens. Every year, the rate adjusts depending on the growth of the Canadian economy and employee wages.

Both self-employed and employed citizens must contribute towards the CPP, but in different ways. People who are employed usually contribute a percentage of their wages to the pension, while their employer matches that contribution. However, self-employed Canadians must pay both of these shares.

The rate changes depending on the year and adjusts according to your income. Since it is subject to change, always check to see the current year’s rate before making the payment. For example, in 2019, the percentage was 5.1%, and as of 2020, it was at 5.25%.

Wrapping Up Tax Deductions

When you maintain a consistent record of your accounts payable and receivable, it is easier to manage your tax return. Whether you choose to file your taxes manually or use tax filing software, always make sure that what you claim matches the receipts and statements that you have.

Keep all records of your business expenditures for six years. In case of a tax audit, the Canada Revenue Agency may ask for receipts that go that far back. Maintaining these records helps you avoid a fine if information in your filing form requires a second look.

When you have the right information and prepare yourself for tax season throughout the business year, filing your taxes becomes a breeze. Keep track of your expenses, monitor your costs, and record all income that you receive from others for your services.