Self-Employed Finances in Canada: HST, Business Expenses, and the CPP Dilemma

Self-employment in Canada comes with significant tax complexity — and significant opportunity. The HST registration requirement, doubled CPP contributions, and the ability to deduct business expenses all require understanding to navigate correctly.

HST/GST registration: when it's mandatory

Once your business revenues exceed $30,000 in any rolling 12-month period, you must register for HST/GST. Once registered, you collect HST on your sales and can claim Input Tax Credits (ITCs) to recover HST paid on business purchases — potentially recovering significant tax on equipment, software, and business costs.

The self-employed CPP dilemma

Self-employed Canadians pay both the employer and employee portions of CPP — effectively 11.9% of net self-employment income (vs 5.95% for employees). On $80,000 net income, this is $7,734 — compared to $3,867 for an employee. This is a significant expense, but it also builds a larger CPP entitlement at retirement.

Allowable business expenses for the self-employed

• Home office: the percentage of home used exclusively for business (square footage method)
• Vehicle: business-use portion only (keep a mileage log)
• Professional fees: accountant, legal, insurance
• Equipment: computers, cameras, tools — Capital Cost Allowance (depreciation)
• Marketing: website, ads, design
• Professional development: directly related courses and conferences
• Office supplies, postage, phone/internet (business portion)
• Meals and entertainment: 50% deductible for legitimate business purposes

RRSP: the self-employed tax shelter

Self-employed Canadians have no employer pension — but can contribute 18% of the previous year's earned income to their RRSP (max $31,560). In a high-income year, maximising RRSP contributions can defer tens of thousands in taxes. The refund can then be invested in the TFSA for tax-free growth.