Self-employed in Ontario: tax basics (T2125, HST, instalments)

Report business income on Form T2125

If you operate as a sole proprietor or in a partnership rather than through a corporation, your business results are reported on your personal return using Form T2125, Statement of Business or Professional Activities. The CRA’s Guide T4002 explains the form line by line. The net income from T2125 is added to your other income and taxed at your personal rates, and it also drives Canada Pension Plan contributions on self-employment earnings.

The CRA allows you to deduct any reasonable current expense incurred to earn business income, but only the business portion. Home-workspace costs and motor vehicle costs are claimed in their own sections of the form rather than as general expenses, and each needs a reasonable allocation between business and personal use. Purchases of capital property such as equipment or a vehicle are not deducted in full; they are claimed over time through capital cost allowance.

Keep invoices, receipts, bank and card statements and a mileage log from the first month of operation. Reconstructing a year after the fact rarely produces a complete claim.

Know when to register for GST/HST

Most businesses can stay unregistered while they are a small supplier. The CRA’s rule is that you remain a small supplier as long as you do not exceed $30,000 in taxable sales over four consecutive calendar quarters. If you exceed $30,000 in a single calendar quarter, you must register and charge tax on the sale that pushed you over. If you exceed the threshold across four quarters instead, you stop being a small supplier at the end of the month following the quarter in which you exceeded it, and you have 29 days from the effective date to register.

In Ontario the harmonized rate on most taxable supplies is 13%. Once registered, you charge HST on your invoices, claim input tax credits for the tax you paid on business purchases and file returns for each reporting period. Some services and industries have exceptions, so check the current CRA guidance for your type of work.

Voluntary registration before you reach the threshold can make sense if your customers are businesses that recover HST and you have significant start-up costs. It also creates filing obligations, so it is a decision to make deliberately rather than by default.

Plan for instalments

Employees have tax withheld from each pay; self-employed people do not. The CRA may require you to pay instalments if your net tax owing is more than $3,000 for the current year and in either of the two previous years. For 2026 the individual instalment due dates are March 15, June 15, September 15 and December 15.

The CRA sends instalment reminders based on prior returns, but the reminder is not the only acceptable amount. You can pay based on your current-year estimate; if you underpay, instalment interest can apply. Setting aside a fixed percentage of each deposit into a separate account is the simplest way to avoid a large balance in April.

Remember that CPP contributions on self-employment earnings and, if registered, HST collected are separate from income tax. All three need to be funded from the same revenue.

Watch the two spring deadlines

For self-employed individuals and their spouses or partners, the CRA sets a June 15 filing deadline for the personal return, but any balance owing is still due April 30. For the 2025 tax year those dates were June 15, 2026 and April 30, 2026; check the current CRA guidance for the dates that apply when you file your 2026 return.

Because the balance is due before the return, many self-employed people file in April anyway so that the amount owing is known. Filing late when you owe tax leads to a late-filing penalty; paying late leads to daily compound interest even when the return is on time.

Decide when a corporation is worth discussing

Incorporating changes how income is taxed, adds a separate corporate return and financial statements and does not by itself reduce record-keeping. It is a decision that depends on how much of the profit you need to draw personally, liability considerations and your plans for the business, not on revenue alone.

Ask about it when the business is consistently profitable and you are leaving money in the business, or when contracts or lenders require it. Until then, clean books, timely HST filings and funded instalments do more for a sole proprietor than a change in structure.