Starting a Freelance Business in Canada: Your Complete Tax Setup Checklist

You landed your first client. Congratulations. Now what? Before you get too deep into the work, there are a handful of tax and business registration tasks you need to handle. None of them are complicated, but skipping them creates problems that compound over time: missed deductions, surprise tax bills, and scrambles at filing time.

Here is the checklist, in the order you should tackle it.

1. Decide on Your Business Structure

Most new freelancers in Canada operate as sole proprietors. It is the simplest structure: you and the business are one and the same for tax purposes. You report your business income and expenses on Form T2125 as part of your personal T1 return.

You do not need to incorporate to freelance. Incorporation makes sense when your business income significantly exceeds your personal spending needs (often cited as $100,000+ in retained earnings annually), but for most freelancers starting out, the added cost and complexity of a corporation is not worth it.

Key difference: A sole proprietor pays personal income tax on all business profits. A corporation pays corporate tax, and you pay personal tax again when you withdraw money as salary or dividends. The benefit only kicks in when you can leave significant money inside the corporation.

2. Get a Business Number from the CRA

A Business Number (BN) is a nine-digit identifier the CRA uses to identify your business. You need one if you are going to register for any CRA program accounts:

• GST/HST account (RT)
• Payroll account (RP) -- only if you hire employees
• Import/export account (RM)

You can register for a business number:

• Online through the CRA's Business Registration Online (BRO) service
• By phone at 1-800-959-5525
• By mail using Form RC1, Request for a Business Number

Online registration is the fastest. You will typically receive your BN immediately or within a few business days.

Do you need a BN if you are under $30,000 in revenue? Not strictly. If you are not registering for GST/HST or any other CRA program, you can report your self-employment income on your T1 without a BN. However, getting one early is free and makes things simpler if you grow past the GST/HST threshold later.

3. Register for GST/HST (When Required)

You must register for GST/HST once your revenue from taxable supplies exceeds $30,000 in a single calendar quarter or over four consecutive calendar quarters. This is the "small supplier" threshold.

Once you exceed it, you are required to register and begin collecting GST/HST from your clients. You have 29 days from the date you exceed the threshold to register.

Should You Register Voluntarily?

Even if you are under the $30,000 threshold, voluntary registration can make sense if:

• Most of your clients are businesses. They can claim back the GST/HST you charge as an input tax credit, so it does not actually cost them anything. Meanwhile, you get to claim ITCs on your own business purchases.
• You have significant startup costs. If you are buying equipment, software, or supplies before you start earning, being registered lets you recover the GST/HST you paid on those purchases.

If your clients are primarily consumers (individuals, not businesses), voluntary registration makes your prices 5-15% higher with no benefit to the buyer. In that case, it may make sense to wait.

Choosing Your Filing Frequency

When you register, you choose whether to file GST/HST returns annually, quarterly, or monthly. Most new freelancers choose annual filing, which is the simplest. You can switch later if your volume grows.

4. Choose Your Fiscal Year End

As a sole proprietor, your fiscal year end must be December 31. You do not have a choice here. The CRA requires sole proprietors to use a calendar year end.

If you incorporate later, the corporation can choose a different fiscal year end (and there are strategic reasons to do so), but as a sole proprietor, it is always December 31.

5. Open a Separate Business Bank Account

This is not a CRA requirement, but it is one of the most important things you can do for yourself. A dedicated business bank account:

• Simplifies bookkeeping. Every transaction in the account is business-related.
• Makes audit defence easy. If the CRA asks to see your records, you hand over business bank statements without exposing your personal finances.
• Prevents missed deductions. Business expenses on a personal card are easy to overlook.

You do not need a formal "business" account. Many banks offer no-fee personal chequing accounts that work perfectly well for a sole proprietor. What matters is that you use it exclusively for business transactions.

6. Set Aside Money for Taxes

As an employee, taxes are deducted at source. As a freelancer, they are not. Every dollar you receive from a client is gross income. You need to set aside a portion for:

• Federal and provincial income tax -- your marginal rate depends on your total income
• CPP contributions -- self-employed individuals pay both the employee and employer portions, totalling 11.9% on pensionable earnings between the basic exemption and the yearly maximum pensionable earnings (YMPE), plus CPP2 on earnings up to the second ceiling (YAMPE). Check the CRA website for current year amounts, as these limits are indexed annually.

How Much to Set Aside

A common rule of thumb:

Annual Net Income	Suggested Set-Aside
Under $57,375	25% of net income
$57,375 - $114,750	30% of net income
$114,750 - $158,468	35% of net income
Over $158,468	40%+ of net income

These percentages are rough estimates based on 2025 federal tax brackets, combined with approximate provincial tax and CPP contributions (assuming Ontario rates). Your province may be higher or lower. Check the CRA website for current year bracket thresholds, as they are indexed annually.

Practical method: Transfer a percentage of every payment you receive into a separate savings account. Do it the same day the money arrives. Treat that savings account as money that belongs to the CRA.

7. Start Tracking Expenses from Day One

Every business expense you track reduces your taxable income. The CRA requires you to keep records of all income and expenses for at least six years from the end of the last tax year to which they relate.

What to Track

• Receipts for every business purchase
• Invoices you send to clients
• Bank and credit card statements
• Vehicle logbook if you drive for business
• Home office measurements if you work from home

Acceptable Record Formats

The CRA accepts electronic records as long as they are legible and have not been altered. You do not need to keep paper receipts if you have clear digital copies. Scanned receipts, photos of receipts, and records from accounting software are all acceptable.

Expenses to Start Tracking Immediately

Many new freelancers do not realize they can deduct expenses incurred before they earn their first dollar of revenue. If you bought a laptop, software, or supplies to start your business, those are deductible. Common startup expenses include:

• Computer and equipment
• Software subscriptions (design tools, project management, accounting)
• Website and domain costs
• Business cards and marketing materials
• Home office setup costs
• Professional development and courses related to your field

8. Understand Your Filing Obligations

As a self-employed sole proprietor, here is what you file and when:

Form	What It Covers	Deadline
T1 (with T2125)	Personal income tax with business income	June 15
GST/HST return	GST/HST collected and ITCs	June 15 (annual filers)
Instalment payments	Quarterly tax prepayments (if required)	March 15, June 15, Sept 15, Dec 15

Remember: even though your filing deadline is June 15, any taxes owed are due April 30.

Quick-Start Summary

Here is the short version:

1. Register for a business number through CRA Business Registration Online
2. Register for GST/HST if you are over $30,000 in revenue (or voluntarily if it benefits you)
3. Open a dedicated bank account for all business transactions
4. Set aside 25-30% of income in a separate savings account for taxes
5. Track every receipt and expense from your very first business purchase
6. File your T2125 with your personal tax return by June 15

Getting these fundamentals right at the start saves hours of cleanup later and ensures you are not leaving deductions on the table.

Sources

1. CRA: Register for a business number
2. CRA: When to register for and start charging the GST/HST
3. CRA: Business records
4. CRA: Guide T4002 -- Self-employed Business, Professional, Commission, Farming, and Fishing Income
5. CRA: Business income tax reporting