How much tax to set aside when you are self-employed

Why there is no single percentage

Canadian income tax is progressive. Each slice of your taxable income is taxed at the rate for its bracket, so someone with $40,000 of net profit and someone with $120,000 do not need to set aside the same share of each payment. Credits, deductions, other income in the household and a spouse’s situation all move the answer too.

A flat figure is still useful as a working number, as long as you treat it as an estimate that you check against your actual results every quarter. The goal is a balance in your tax account that roughly matches what you will owe, so April does not arrive as a surprise.

What you are actually setting aside for

Three different things can be owed, and they behave differently. Income tax is federal plus Ontario and is worked out on your taxable income. Canada Pension Plan contributions are calculated on your net business income and, because you have no employer, you pay both the employee and employer shares. GST/HST, if you are registered, belongs to the government from the moment you collect it.

Voluntary EI premiums for self-employed special benefits apply only if you have entered an agreement with the government to participate. If you have not, ignore them. Our separate article on CPP on self-employment income covers that contribution in detail.

Start from net profit, not deposits

Tax is based on what is left after allowable business expenses, so your deposits overstate the amount that will be taxed. If you invoice $10,000 and spent $2,000 on allowable costs, the figure that feeds your tax calculation is closer to $8,000. Setting aside a percentage of the full $10,000 is cautious, but it can starve the business of working cash.

The practical fix is to keep your books current enough to see year-to-date net profit. Even a simple monthly tally of revenue minus expenses is enough to estimate where you will land. If your records are behind, set aside more while you catch up, and see our article on how to categorize business expenses.

Build a rate from the 2026 brackets

The CRA lists the 2026 federal rates as 14% up to $58,523, 20.5% from there to $117,045, 26% to $181,440, 29% to $258,482 and 33% above that. Ontario’s rates are 5.05% up to $53,891, 9.15% to $107,785, 11.16% to $150,000, 12.16% to $220,000 and 13.16% above. Add the federal and Ontario rate for the bracket you expect to reach to see the combined rate on your next dollar of taxable income. In the first bracket that is 19.05%, and in the second it is 29.65%.

That combined rate applies to the top slice, not to all of your income, and credits such as the basic personal amount reduce the tax on the first slice. Your average rate is therefore lower than your highest bracket. On top of income tax, CPP is 11.9% of net business income above $3,500, to a ceiling of $74,600 of earnings. Table rates alone will not capture every Ontario amount, so ask your accountant to run your actual figures at least once.

A worked illustration

These numbers are illustrative only. Suppose your accountant estimates that income tax and CPP together will come to about 25% of your net profit this year. You invoice $10,000 and have $2,000 of allowable costs that relate to that job. Net profit on the job is $8,000, so you move $2,000 to your tax account and treat $6,000 as business and personal cash.

If instead profit runs higher than planned, the same 25% may be too little, because later dollars fall into higher brackets. A mid-year review lets you raise the percentage while there is still time. If profit falls, you can lower it, but keep the money in the account until the year is closed so you are not guessing.

Where to keep it and when it leaves

Open a separate account for tax money and transfer the set-aside amount whenever a client pays. Keeping it apart makes it harder to spend and makes the balance visible at a glance. It does not need to be complicated, but it should not sit in the account you use for daily spending.

For the 2026 tax year, the CRA gives April 30, 2027 as the payment deadline for balances owing, and June 15, 2027 as the usual filing date when you or your spouse or common-law partner carried on a business. The later filing date does not extend the payment date. If you are required to pay instalments, they are generally due on March 15, June 15, September 15 and December 15 each year, and the amount comes out of the same pool. Our article on whether you need to pay tax instalments explains the test.

Keep GST/HST in its own bucket

If you are registered, the GST/HST you charge is not income and not part of your tax estimate. Hold it in a separate balance so that your income tax set-aside is not quietly used to cover a return. Our article on why GST/HST collected is not spending money explains the reasoning, and the same habit of a separate balance works for both.

Common mistakes and what to bring

The usual problems are setting aside from deposits rather than profit, forgetting CPP, treating a good month as a typical month, and spending the account after a quiet one. Another is ignoring your own earlier results. Your notices of assessment for the last two years show what you owed, which is a reasonable starting point for the first estimate.

For a conversation with an accountant, bring year-to-date revenue and expenses, last year’s return and assessment, any instalment reminders or payments, GST/HST balances and a note of other household income or large one-time items. Ask for a planning percentage and a date to revisit it.