How much should I set aside for tax?

There is no single percentage that works for everyone because tax depends on net business income, province, other income, deductions and CPP/QPP obligations. A calculator can estimate income tax and self-employed pension contributions so you can build a more realistic reserve.

A sole proprietor generally reports business income and deductible business expenses on the personal income tax return. Net business income is included in taxable income, and self-employed workers generally pay both the employee and employer portions of CPP/QPP contributions up to applicable limits.

Reasonable business expenses incurred to earn business income may be deductible when they meet CRA or Revenu Québec rules. Common categories can include office costs, professional fees, advertising, eligible vehicle expenses and a business-use portion of home expenses.

Self-employed individuals generally pay both portions of CPP because there is no separate employer paying the employer share. Quebec self-employed workers similarly face both portions under QPP/RRQ, subject to the applicable rules and maximums.

You may be required to make instalment payments when your net tax owing exceeds the applicable thresholds in the current and prior years. CRA or Revenu Québec may send instalment reminders, but taxpayers should still plan for tax throughout the year.