What Is an Independent Contractor in Canada?
An independent contractor provides services under contract without being an employee. Contractors control their own work and manage their own taxes. Pathak Professional Corporation in Mississauga serves contractors across Ontario. Call 437-872-7399.
Key Tax Obligations
- T1 + Schedule T2125: Report all self-employment income; taxed at marginal rates up to 53.53% in Ontario
- CPP (both shares): 11.90% on net income above $3,500 (max $7,735 in 2025); employer half deductible on line 22200
- HST/GST: Register when revenue exceeds $30,000; collect 13% HST in Ontario
- Quarterly instalments: Required when net federal tax owing exceeds $3,000
Set Aside 30-35% for Taxes
Open a separate tax savings account and transfer 30-35% of every client payment received. This prevents the surprise CRA bill that catches many first-year contractors off guard. At income over $100,000 net, set aside 40-45%.
When to Incorporate
Incorporation saves significant tax when you can leave $40,000+ per year in the corporation. At $100,000 net retaining $40,000, the 12.2% corporate rate vs. 43%+ personal rate saves approximately $12,000-$15,000 per year. At $150,000+ retaining $70,000+, savings reach $20,000-$30,000+ annually. Always assess Personal Services Business risk first if working primarily for one client.
