Independent contractors in Canada report self-employment income on a T1 personal return using Form T2125 (Statement of Business or Professional Activities). You enter gross revenue, subtract eligible business expenses, and the result becomes your net self-employment income (or loss) for the year. A separate question is GST/HST: if you stop being a “small supplier,” you may need to register, charge, and remit GST/HST.
Quick answers
What Form do independent contractors use in Canada?
Most independent contractors use Form T2125 to report self-employment income and expenses as part of their T1 return. A clear overview (including what the form captures) is explained by Wealthsimple in its T2125 guide: (wealthsimple.com)
Do contractors get a T4A?
Some payers issue a T4A for contractors and report “fees for services” in Box 048. Even without a T4A, you still report income based on invoices and deposits. (Practical slip context) (Canada)
When do you register for GST/HST?
You’re generally a small supplier until taxable supplies exceed $30,000 under the CRA’s quarter-based tests. BDO Canada summarizes the threshold and timing plainly: (BDO Canada)
What are the key dates?
Self-employed filers typically file by June 15 but must pay any balance by April 30 to avoid interest. A straightforward explanation is here: (turbotax.intuit.ca)
Step 1 — Confirm you’re an independent contractor, not an employee
Your status changes the tax form and deduction rules. If you’re self-employed, you generally use T2125. If you’re an employee, you typically don’t use T2125, and your deductible expenses follow a different set of rules.
A practical “real-world” test used by many accounting firms is whether you:
- control how the work is done,
- supply your own tools,
- can make a profit (or take a loss), and
- invoice clients rather than receiving payroll.
If you’re unsure, treat this as a classification problem you want to get right early; misclassification is one of the fastest ways to trigger reassessments.
Step 2 — Set up records so your T2125 is defensible
T2125 is easy to file and hard to defend without clean records. Most problems happen because people try to rebuild the year from memory in March or April.
A simple system that works for most contractors:
- 1 income list (invoice date, client, amount, GST/HST charged if applicable)
- 1 expense list (date, vendor, category, business purpose, amount, receipt link)
- separate mileage + home office worksheets (because those claims need math)
CRA record retention is commonly explained as 6 years. Here’s the retention rule in plain terms: (Where to keep your records) (Canada)
“T2125-ready” records checklist
| You should have | Examples | Why it matters |
| Proof of income | invoices, platform statements, deposit summaries, T4A if issued | proves gross revenue |
| Proof of expenses | itemized receipts, invoices, bank/credit statements | supports deductions |
| Allocation proof | mileage log, home office measurements, phone/internet basis | supports business-use % |
| GST/HST trail (if registered) | invoices showing tax, ITCs, and return summaries | prevents double-claiming |
Step 3 — Report contractor income on Form T2125
You report your total revenue first, then claim expenses. Don’t report “what landed in the bank after fees.” Report gross revenue, then list fees/commissions as expenses.
TurboTax Canada has a clear overview of what T2125 is used for and what kinds of expenses commonly appear on it: (turbotax.intuit.ca)
Where T4A fits (if you received one)
If you received a T4A (often with Box 048), treat it as a cross-check, not your only income source:
- If your invoices/deposits are higher than the T4A, you still report full income.
- If the T4A is higher, reconcile what it includes (timing differences, missing invoices, reimbursements, etc.).
Step 4 — Claim eligible expenses the way CRA and accountants expect
A deductible business expense is a reasonable cost you incurred to earn business income. Your job is to claim the right category, claim only the business portion, and keep proof.
Fast “expense logic” table
| Expense type | How to claim it | What makes it defensible |
| Clear business-only costs | claim 100% | receipt + business purpose |
| Mixed-use costs (phone, internet) | claim business % | a consistent basis (e.g., usage estimate) |
| Allocation-heavy costs (home office, vehicle) | claim using worksheets | measurements + logs |
Home office expenses (business-use-of-home)
Home office is defensible when you can explain your percentage. Many accountants use a simple area-based method (and add a time factor if the space isn’t dedicated).
A practical explanation written for Canadian taxpayers: (KWBLLP Accountants)
Simple example (area method):
- Home: 1,200 sq ft
- Workspace: 120 sq ft
- Workspace % = 120 ÷ 1,200 = 10%
If the eligible home costs were $6,000, a 10% claim is $600.
Motor vehicle expenses (no flat mileage rate for self-employed)
Self-employed contractors don’t use a flat cents-per-km method. You claim actual vehicle costs and allocate by business-use percentage. Driversnote explains this clearly: (driversnote.ca)
Mileage allocation example:
- Total km: 18,000
- Business km: 6,300
- Business-use % = 35%
If the eligible vehicle costs were $9,200, your claim is $3,220.
Meals and entertainment (the “50% rule” contractors forget)
Meals are often limited to 50% in many common business scenarios. A contractor-friendly overview (with reminders to keep purpose/attendees) appears in multiple professional explainers, including: (KWBLLP Accountants)
Capital items vs expenses (CCA)
Big purchases aren’t always deductible in full in the year you buy them. Instead, they may be claimed as Capital Cost Allowance (CCA) over time.
TurboTax’s CCA explanations are clear and include useful numeric examples and the half-year rule:
- CCA basics + example: (turbotax.intuit.ca)
- Vehicle CCA basics: (turbotax.intuit.ca)
For deeper class/rate detail (official list), CRA’s class tables exist, but you generally don’t need to memorize them if you’re using software or working with an accountant. (If you do want the official table, visit Canada.
Step 5 — GST/HST: decide if you need to register
GST/HST is separate from income tax, but contractors often handle both in the same year.
A clean summary of the $30,000 threshold and how it typically affects self-employed people is in BDO’s bulletin: (BDO Canada)
For a practical “how-to” registration overview (written for small businesses), Square also explains the $30,000 trigger and the idea that the threshold-crossing sale can matter: (Square)
If you need the official rule language (effective date, charging GST/HST when you cross the threshold), the CRA page is here (use it as the legal backstop, not your only reference): (Canada)
Practical GST/HST checklist
- Do you invoice Canadian clients and provide taxable supplies?
- Are you near or above $30,000 in taxable supplies?
- If registered, are you tracking GST/HST collected and ITCs?
Step 6 — Transfer the result to your T1 correctly
T2125 calculates the net income; your T1 is where it lands as personal income. The CRA “self-employment income lines” page explains the gross/net reporting lines (useful if you’re reconciling totals).
If you’re using software, your job is simpler: confirm that:
- Your gross revenue matches invoices/deposits,
- Your expense categories are correct,
- Your allocations (home/vehicle) have a strong calculation.
Step 7 — File on time and avoid predictable penalties
Self-employed deadlines have two dates: a filing date and a payment date.
TurboTax summarizes it in one line: pay by April 30, file by June 15. (turbotax.intuit.ca)
If you want a second professional source that also mentions weekend adjustments, H&R Block posts annual deadline reminders: (H&R Block Canada)
NETFILE, software, or an accountant: the simplest decision rule
Use software when your records are clean. Use an accountant when your situation creates compliance risk.
Software is usually enough when you have:
- one income stream,
- straightforward expenses,
- clean bank separation,
- no GST/HST registration complexity.
Hire help when you have:
- GST/HST registration timing questions,
- multiple businesses / multiple T2125s,
- large vehicle or home-office allocations,
- missing records or late filings.
When Acctax Company is the right fit
Acctax Company is a good fit when you want:
- income reconciled to invoices, deposits, and slips,
- expenses classified correctly (especially allocations and CCA),
- GST/HST decisions aligned with your revenue pattern,
- a filing that’s accurate, defendable, and on time.
