Your first year of self-employment in Canada involves setting up systems you will use for years. The decisions you make now — about how you track income, categorize expenses, and handle GST/HST — have a direct impact on your tax bill and your CRA compliance. Here is the complete setup checklist.
Before You Start Working: Business Setup
- ☐ Decide your business name: Using your legal name requires no registration. Using any other name requires provincial business name registration ($40–$60 depending on province).
- ☐ Open a business bank account: Separate business and personal finances from day one. Keeps your CRA records clean and makes tax preparation much simpler.
- ☐ Set up invoicing: Wave (free), FreshBooks (~$19/month), or QuickBooks. Your invoices need: your name/business name, client name, description of services, amount, payment terms, and GST/HST number (once registered).
- ☐ Set up a tax savings account: A separate savings account where you transfer 25–30% of every payment received. This covers income tax, CPP contributions, and eventual GST/HST remittance.
As You Start Earning: Tracking
- ☐ Record every payment received with the date, amount, and client name. This is your gross revenue for T2125.
- ☐ Keep every receipt for business expenses — photograph them immediately, before they fade or get lost. File by month and category.
- ☐ Monitor your four-quarter revenue total against the $30,000 GST/HST threshold. If you are approaching $30,000, register proactively.
- ☐ Start a mileage logbook if you use your vehicle for business. Record date, destination, business purpose, and km for each business trip.
GST/HST: What to Do and When
- ☐ Under $30,000 revenue: No GST/HST registration required (small supplier). You cannot charge GST/HST and cannot claim ITCs.
- ☐ Approaching $30,000: Register voluntarily or wait until you cross the threshold. Voluntary registration lets you claim ITCs immediately.
- ☐ Over $30,000 in 4 consecutive quarters: Register immediately — you have 29 days from the threshold-crossing sale. All registrations now online at CRA’s Business Registration Online (BRO).
Tax Obligations in Your First Year
- ☐ No tax withheld at source: You receive 100% of every client payment. Set aside 25–30% immediately — you will owe income tax + CPP on April 30.
- ☐ CPP in your first year: You pay CPP on net self-employment income whether or not you make instalment payments. The full amount is due with your T1 in April.
- ☐ First-year instalments: In your first year of self-employment, instalments are generally not required — the CRA looks at two prior years to trigger the requirement. If your 2026 tax bill is large, expect the CRA to request 2027 instalments.
- ☐ RRSP in your first year: You generate RRSP contribution room equal to 18% of your net self-employment income. This room is available to use starting in the following year. Your first year’s earnings create room you can contribute starting January 1 of the next year (up to the following year’s RRSP deadline).
At Tax Time: What to Expect
- ☐ File T2125 (Statement of Business or Professional Activities) attached to your T1 personal return
- ☐ Report all revenue even if no T4A was issued by the client
- ☐ Deduct all legitimate expenses — do not leave money on the table
- ☐ Pay by April 30 — file by June 15 (extended self-employed deadline)
- ☐ Expect a large bill your first year — a typical first-year freelancer earning $60,000 net owes approximately $17,000–$22,000 in income tax + CPP, depending on province. Start saving from day one.
Frequently Asked Questions
Do I need an accountant in my first year?
Not necessarily. If your situation is straightforward (one business activity, standard expenses, no employees), Wealthsimple Tax or TurboTax Self-Employed can guide you through T2125 accurately. An accountant adds value for complex situations, incorporation planning, or when you have significant CRA questions. At minimum, consult a CPA once in your first year to confirm your setup is correct.
How do I know what my marginal tax rate is?
Your marginal rate is the rate that applies to the last dollar of your total income. In Ontario for 2026, the combined federal + provincial rate is approximately 29.65% on income between $57,375 and $73,200, rising to 31.48% between $73,200 and $102,894. You pay CPP (11.9%) on top of income tax on self-employment income. Use CRA’s online tax estimator or your tax software to calculate your expected bill.
What if I also have a part-time job during my first year?
Your employer withholds tax based on your employment income only. Your self-employment income is taxed in addition to your employment income — so if your employer has you in a 20% bracket but your combined income puts you at 33%, you will owe the difference in April. Adjust your tax savings rate upward if you have both income streams.