How much should a Canadian freelancer set aside for taxes?

Picture a freelance designer in Toronto. She had a great year. Net self-employment income of $72,000. She files her T1 in April expecting maybe $10,000 owing. The notice of assessment lands. She owes just over $18,000. CPP alone is more than $8,000 of that, and she did not see it coming.

If you have been there, or you are trying to stop next April from blindsiding you, this is the post.

We will walk through how the bill is actually built, do the math at $40,000 and $80,000 of net self-employment income in Ontario, and finish with a rule of thumb you can use to size your tax savings account. All figures are for the 2025 tax year (with 2026 thresholds noted where they have shifted).

How your bill gets built

When you are self-employed and unincorporated (a sole prop, freelancer or contractor), your tax bill has up to four parts.

1. Federal income tax on your net business income, after the federal basic personal amount.
2. Provincial or territorial income tax, also after the provincial basic personal amount.
3. CPP contributions on your self-employment earnings. You pay both the employer and the employee half.
4. GST/HST if you crossed the $30,000 small-supplier threshold (and PST or QST if you are in BC, Manitoba, Saskatchewan or Quebec and sell taxable goods or services).

You do not pay EI by default. Self-employed people can opt in to EI special benefits, but most do not, so we will leave EI out of the math. For the full annual deadline schedule that runs alongside this set-aside math, see Self-Employed Tax Deadlines in Canada.

One quick myth-buster before we get into numbers. The federal small-business deduction (SBD) does not apply to you as a sole prop. The SBD is a corporate tax break for Canadian-controlled private corporations (CCPCs). If you have not incorporated, your business income flows onto your personal T1 and is taxed at your full marginal rate. There is no magical sole-prop discount.

The 2025 federal brackets

For 2025, the federal brackets are (CRA via TaxTips):

• 14.5% on the first $57,375 (this is a blended rate because the lowest bracket dropped from 15% to 14% mid-year on July 1, 2025)
• 20.5% on income from $57,375 to $114,750
• 26% on income from $114,750 to $177,882
• 29% on income from $177,882 to $253,414
• 33% on income above $253,414

For 2026, the lowest rate is a clean 14% and the thresholds index up to $58,523, $117,045, $181,440 and $258,482 (CRA, via Yahoo Finance summary).

The federal basic personal amount (BPA) for 2025 is $16,129, meaning the first $16,129 of taxable income is effectively shielded from federal tax. The BPA phases down for high earners. Once net income passes $177,882 the BPA starts to shrink, hitting $14,538 at $253,414 of income (Canada.ca: BPA).

The Ontario brackets (our worked example province)

Ontario brackets for 2025 are (TaxTips: Ontario):

• 5.05% on the first $52,886
• 9.15% from $52,886 to $105,775
• 11.16% from $105,775 to $150,000
• 12.16% from $150,000 to $220,000
• 13.16% above $220,000

Ontario also has surtaxes that kick in at higher incomes, plus a basic personal amount around $12,747 for 2025. If you are not in Ontario, swap in your own provincial figures. Quebec is its own beast (separate provincial return, separate QST regime, QPP instead of CPP).

Why CPP is the surprise

CPP is the line that most freelancers underestimate. As an employee you only see 5.95% on your paystub. The other half is paid by your employer.

When you are self-employed you are both. You pay both halves.

For 2025, here is what that looks like (Canada.ca: 2025 CPP maximums):

• Basic exemption: $3,500
• Year's Maximum Pensionable Earnings (YMPE): $71,300
• Year's Additional Maximum Pensionable Earnings (YAMPE): $81,200
• CPP1 rate for self-employed: 11.9% on earnings between $3,500 and $71,300
• CPP2 rate for self-employed: 8.0% on earnings between $71,300 and $81,200

Maximum CPP1 for a self-employed person in 2025: ($71,300 - $3,500) x 11.9% = $8,068.20. Maximum CPP2: ($81,200 - $71,300) x 8.0% = $792.00. Together that is $8,860.20 in pure CPP on top of your income tax once you are above $81,200 of net SE earnings.

Half of that ($4,430.10 at the cap) is deductible from your taxable income, and a portion is a non-refundable credit, so the after-tax sting is a bit smaller. But the cash you have to come up with on April 30 is the full amount.

GST/HST: the other 13% surprise

If your total taxable revenue (across all your businesses, before expenses) crosses $30,000 in any single calendar quarter or over four consecutive quarters, you must register for GST/HST (Canada.ca: small suppliers).

Once registered, you charge GST/HST on top of your invoices. Rates by province (Canada.ca: GST/HST rates):

• 5% GST only: Alberta, Yukon, NWT, Nunavut
• 5% GST federally, plus separate provincial sales tax: BC (PST 7%), Manitoba (RST 7%), Saskatchewan (PST 6%). The 5% GST goes to CRA; the provincial portion is filed separately with the province and only applies to taxable goods and certain services
• 13% HST: Ontario
• 14% HST: Nova Scotia (rate dropped from 15% on April 1, 2025)
• 15% HST: New Brunswick, Newfoundland and Labrador, PEI
• 5% GST + 9.975% QST: Quebec (both administered by Revenu Québec)

The key point for your tax reserve: GST/HST is not your money. You collect it on behalf of CRA. If you do not park it in a separate account, you will end up spending it and then owing it. We cover this trap in more detail on the GST/HST threshold calculator page, and the CRA single-quarter rule post explains the registration trigger most freelancers don't see coming.

Worked example: $40,000 net SE income, Ontario

You are a freelance writer in Ottawa. Net business income on your T2125 is $40,000. No spouse, no kids, no other income, no RRSP contributions.

Federal tax - Taxable income: $40,000 - BPA shield: $16,129 - Taxed at 14.5%: ($40,000 - $16,129) = $23,871 x 14.5% = $3,461

Ontario tax - BPA shield: $12,747 - Taxed at 5.05%: ($40,000 - $12,747) = $27,253 x 5.05% = $1,376

CPP1 - Pensionable earnings: $40,000 - $3,500 = $36,500 - Self-employed rate: 11.9% - CPP1 owing: $4,343

CPP2: None ($40,000 is below the $71,300 YMPE).

GST/HST: None collected from clients (assuming you registered late or had a slow start; if you registered earlier in the year you would have remitted as you went).

Total owing: roughly $3,461 + $1,376 + $4,343 = $9,180. That is about 23% of $40,000.

Note: half of the CPP and a bit of credit math knock the federal/Ontario tax piece down by a couple hundred dollars in real filings, but the cash-out-the-door figure is in the $8,500 to $9,200 range. Set aside 23 to 25% and you are safe.

Worked example: $80,000 net SE income, Ontario

Now you had a strong year. $80,000 net on your T2125. Single, no other income, no RRSP, no big deductions. You are also registered for HST.

Federal tax - Bracket 1 (up to $57,375): $57,375 x 14.5% = $8,319 - Bracket 2 ($57,375 to $80,000): $22,625 x 20.5% = $4,638 - Subtotal: $12,957 - Less BPA credit ($16,129 x 14%, since the credit is given at the lowest rate): $2,258 - Federal tax: roughly $10,699

Ontario tax - Bracket 1 (up to $52,886): $52,886 x 5.05% = $2,671 - Bracket 2 ($52,886 to $80,000): $27,114 x 9.15% = $2,481 - Subtotal: $5,152 - Less Ontario BPA credit ($12,747 x 5.05%): $644 - Before surtax: roughly $4,508 - Ontario surtax at this income level is small (kicks in fully past about $90K), call it $0 to $100.

CPP1 - Pensionable earnings: $71,300 - $3,500 = $67,800 - Self-employed rate: 11.9% - CPP1 owing: $8,068 (the maximum)

CPP2 - Additional pensionable earnings: $80,000 - $71,300 = $8,700 - Self-employed rate: 8.0% - CPP2 owing: $696

HST: You billed clients $80,000 + 13% HST = $10,400 of HST collected. You remit that minus input tax credits on business expenses. This is separate from the income tax math above. It does not affect your income tax owing, but it does affect your cash flow during the year.

Total income tax + CPP: roughly $10,699 + $4,508 + $8,068 + $696 = $23,971.

That is about 30% of your $80,000 net SE income going to CRA on your T1. The HST is on top of that as a separate flow.

Half of your CPP ($4,382) is deductible in calculating taxable income, which I have not perfectly modelled here. A precise calculation lands closer to $22,500 to $23,000 owing. Either way, you want roughly 28 to 30% sitting in a savings account when April 30 arrives.

Rules of thumb by income band

These are calibrated for an Ontario freelancer with no spouse, no kids, no RRSP, and no big business deductions. They are starting points, not gospel.

• Under $30,000 net SE income: set aside 18 to 22%. You are below the GST/HST registration threshold so no sales tax to remit. Most of your tax is CPP, with a small federal tax bite once you clear the BPA.
• $30,000 to $60,000 net: set aside 25 to 30%. CPP1 starts to bite hard. You may have crossed into HST registration mid-year.
• $60,000 to $100,000 net: set aside 30 to 38%. You hit the 20.5% federal bracket, the 9.15% Ontario bracket, max out CPP1 around $71K, and start paying CPP2.
• Over $100,000 net: set aside 38 to 45%. You are into the 26% federal bracket plus the 11.16% Ontario bracket. CPP is capped so its marginal weight drops, but income tax keeps climbing.

If you live in BC or Alberta these numbers shift down a touch (lower provincial rates). In Quebec they shift up (QPP slightly higher, QST and Quebec income tax on top).

Where these rules of thumb break

A rule of thumb is wrong sometimes. Here is when.

You have large RRSP contributions. Every dollar of RRSP contribution reduces taxable income dollar-for-dollar. A freelancer at $80K who puts $15,000 into RRSPs is taxed roughly like a $65K freelancer. Your set-aside percentage drops.

You have a spouse and/or kids. Spousal amount, eligible dependant, Canada Caregiver, childcare deductions on T778. These all shrink your bill. If your spouse has low income, you may be able to claim the spousal amount and shave off a few hundred dollars.

You have other income sources. A T4 job alongside freelancing changes things significantly. Your T4 employer already withheld federal and provincial tax and one half of CPP. When you add freelance income on top, the freelance dollars get taxed at your top marginal rate (because your T4 already used up the lower brackets), so 30% may not be enough. People with a $60K T4 and $30K of side freelance often need to set aside 40% or more of the freelance portion.

You have big legitimate business deductions. Home office, vehicle, software, contractors, supplies. If your gross is $100K but your net (after deductions) is $60K, you tax the $60K not the $100K. Track expenses carefully throughout the year. The full list is in What can I deduct as a self-employed Canadian?. MapleBooks is built for this.

You are in your first year and started mid-year. Your annualized income is higher than your first-year income, but you are taxed on the first-year number. The CRA will not require quarterly instalments until your second year, which sometimes lets people coast into a nasty April bill.

You are incorporating. Once you are a CCPC, the federal SBD lets you pay roughly 9% federal + provincial small-business rate (around 12% combined in Ontario) on the first $500,000 of active business income retained inside the company. The math above is for unincorporated sole props only.

A safer system than rules of thumb

The cleanest setup is two separate savings accounts:

1. HST account. Every time a client pays an invoice, immediately move the HST portion (13/113 of the total for Ontario) into this account. Do not touch it. It belongs to CRA.
2. Income tax + CPP account. Move your set-aside percentage of the net (post-HST) amount into this account. Do not touch it either.

When April comes, both accounts have what you owe. The rest is genuinely yours.

If you want a more precise number than the rules of thumb, run your year-to-date net income through our tax reserve calculator. It uses 2025 brackets, factors in CPP1 and CPP2, lets you choose your province, and tells you the dollar figure to park aside.

One last thing. The numbers above are accurate for the scenarios described, but everyone's situation has wrinkles (carry-forward losses, capital gains, foreign income, eligible dividend integration, GST/HST quick method). Run your specific numbers past an accountant or CPA before you make major decisions. The cost of an hour with a CPA is small next to the cost of getting a surprise letter from CRA.

Save like you owe 30%. The rest is sleep at night.