Getting paid as an independent contractor in Canada involves more than simply sending an invoice. You need to set up the right payment infrastructure, invoice correctly, handle GST/HST if applicable, and ensure your income is reported and taxed properly. This guide covers the complete payment setup for Canadian independent contractors.
Step 1: Set Up a Business Bank Account
Open a dedicated business bank account before you send your first invoice. This is one of the most important steps you can take as an independent contractor:
- Separates your personal and business finances, which is required for clean CRA records
- Makes GST/HST tracking straightforward — keep all collected tax in the business account until remittance
- Simplifies tax preparation significantly — your accountant (and the CRA) can see clean business income and expenses
Most Canadian banks offer business chequing accounts for sole proprietors. TD, RBC, BMO, Scotiabank, and CIBC all have options starting at $10–$30/month. Credit unions (such as Meridian or Desjardins) often have lower fees for small businesses. Online options like Wealthsimple Business offer lower-fee alternatives.
To open a business bank account, most banks require your government-issued ID, SIN, and proof of business registration (if you are operating under a business name). If you are operating under your legal name, you may not need a registration document.
Step 2: Set Up Your Invoicing
Every payment you receive as an independent contractor should be documented with a proper invoice. Your invoice should include:
- Your legal name or business name and address
- Client’s name and address
- Unique invoice number
- Invoice date and payment due date
- Description of services performed
- Amount in CAD (or USD if billing international clients)
- GST/HST if you are registered: rate, amount, and your 9-digit registration number
- Payment instructions (Interac e-Transfer email, bank details, or payment link)
Free tools: Wave (free), FreshBooks (paid, starting around $19/month), QuickBooks Self-Employed (around $7/month). All three support Canadian GST/HST and produce professional invoices.
Step 3: Choose Your Payment Methods
The right payment method depends on where your clients are located:
For Canadian Clients
- Interac e-Transfer — fastest and simplest for amounts up to $3,000 per transfer (some banks allow higher limits). Free to send and receive on most Canadian bank accounts.
- EFT (Electronic Funds Transfer) — direct bank-to-bank transfer using a void cheque. No fees, takes 2–3 business days. Preferred by many corporate clients.
- Cheque — still common with small businesses. Takes 2–5 business days to clear after deposit.
For US or International Clients
- Wise Business — gives you a real US bank account (routing + account number) for USD payments via ACH. Lowest conversion fees (approximately 0.4–0.8%).
- Stripe — accepts credit card payments from clients globally. Fee: 2.9% + 30¢ CAD per transaction.
- PayPal Business — widely recognized internationally but expensive for currency conversion (3–4% spread).
Step 4: Understand Your GST/HST Obligations
As an independent contractor, you are not required to register for GST/HST until your total taxable revenue exceeds $30,000 in four consecutive calendar quarters. Below this threshold, you are a “small supplier” and do not charge or remit GST/HST.
Once you exceed $30,000, you must register within 29 days of the sale that pushed you over. After registration:
- Add the applicable GST/HST rate to invoices for Canadian clients (5% GST or 13–15% HST depending on province)
- Charge 0% to clients outside Canada (zero-rated export)
- File GST/HST returns (annually for most new registrants) and remit collected tax to the CRA
- Claim Input Tax Credits on GST/HST you paid on business expenses
Step 5: Track and Report Your Income
All contractor income must be reported on your T1 personal income tax return as self-employment income, using Schedule T2125 (Statement of Business or Professional Activities). Key points:
- Report gross income (before expenses)
- Deduct eligible business expenses (home office, software, equipment, professional development, etc.)
- Net self-employment income is added to your other income and taxed at your marginal rate
- You pay CPP contributions at 11.9% on net self-employment income up to the YMPE ($74,600 in 2026). Maximum contribution: $8,460.90 for 2026. The employer-equivalent portion (5.95%) is tax-deductible.
Tax payment deadline: April 30 — any balance owing to the CRA. June 15 — filing deadline for your T1 return if you or your spouse are self-employed.
Frequently Asked Questions
Do clients in Canada deduct taxes from contractor payments?
No. Unlike employees, independent contractors are responsible for their own taxes. Clients pay your full invoiced amount without deducting income tax, CPP, or EI. You pay these obligations directly to the CRA when you file your tax return or through quarterly instalments.
What is the difference between a T4 and a T4A?
A T4 is issued by employers for employment income. A T4A is sometimes issued by clients to report amounts paid to contractors (particularly if the client is a corporation or government entity). If you receive a T4A, report that income on your T2125 as self-employment income. Most private business clients do not issue T4As to independent contractors.
Should I incorporate before accepting contracts?
Not necessarily. Most contractors start as sole proprietors, which is simpler and less expensive. Incorporation makes sense when your net contractor income exceeds approximately $100,000 per year, when clients require you to be incorporated, or when liability protection is a concern. Consult a CPA before making that decision.