Self-Employed Tax Set-Aside

How Much to Set Aside for Taxes When You Are Self-Employed in Canada

For 2026, a self-employed Canadian should set aside roughly 19% of net business income at $30,000, 23% at $50,000, 27% at $75,000 and 28% at $100,000 in Ontario, and slightly less in Alberta and BC. That share is income tax plus both halves of the Canada Pension Plan (CPP) contributions, and it is a share of profit after expenses, not of what you invoice. At $75,000 of profit the Ontario bill is $20,212: $11,719 of federal and Ontario income tax and $8,493 of CPP. The US version of the question has its own guide in how much to set aside for 1099 taxes; this one is built on the CRA's 2026 rules. Expenses cut that figure faster than an RRSP deduction does, because they also lower the CPP.

The set-aside by profit band, in three provinces

The table gives the total of federal and provincial income tax plus CPP and CPP2 on net business income, as a percentage of that income, for a resident of each province with only the basic personal amounts. It uses the CRA's 2026 rates from the T4127 payroll formulas and the CPP and CPP2 rates and maximums, taxed as a return would tax them.

At $20,000 the three provinces agree because there is no provincial tax at that level in any of them and CPP is the whole bill: 11.9% of ($20,000 minus the $3,500 exemption) is $1,963.50, plus $221.83 of federal tax. The Ontario column pulls ahead at $30,000 because of the Ontario Health Premium and a lower basic personal amount, and it keeps pulling ahead at higher incomes through the surtax. The percentages are not a promise. A deduction you did not model, such as the home office, vehicle costs or an RRSP contribution, lowers the real figure. A year of other income raises it.

The dollar amounts for the Ontario column are in the next table, with the CPP kept separate because it is the part many first-year freelancers forget.

Where the 27% at $75,000 comes from

The $75,000 row is worth taking apart, because the same steps explain every other row. They are the steps on the CRA's own example for a self-employed person with $75,000 of income in 2026.

1. CPP is 11.9% of earnings between $3,500 and $74,600. That is both the employee's 5.95% and the employer's 5.95%. The maximum is $8,460.90 (2 × $4,230.45). The CRA splits the 11.9% into a base part of 9.9% and a first additional part of 2%.
2. CPP2 is 8% of earnings between $74,600 and $85,000. On $75,000 that is 8% of $400, or $32. The CRA's worked example for $75,000 reaches the same $8,460.90 + $32 = $8,492.90, so the model reproduces the CRA's figure.
3. Part of the CPP comes back as a deduction and part as a credit. Half of the base part (4.95%, which is $3,519.45) is claimed as a non-refundable credit. The other half of the base part, the 2% additional part and all of the CPP2 are deducted from income: $3,519.45 + $1,422.00 + $32.00 = $4,973.45.
4. Net income is $75,000 − $4,973.45 = $70,026.55. That is the income that federal and provincial tax apply to.
5. Federal tax on $70,026.55 is 14% of the first $58,523 plus 20.5% of the rest, which is $10,551.45, minus credits at 14% of the federal basic personal amount ($16,452) and the CPP base credit ($3,519.45), which are worth $2,796. Federal tax is about $7,755.
6. Ontario tax is 9.15% of income above the second bracket line less a constant, which gives $4,197.43, minus the credit at 5.05% on the Ontario basic amount ($12,989) and the CPP base credit, which is $833.67. Basic Ontario tax is about $3,364. The Ontario Health Premium adds $600, and the Ontario surtax does not apply because basic tax is below $5,818. Ontario total: about $3,964.
7. Total: about $7,755 + $3,964 + $8,493 = $20,212, or 26.9% of $75,000.

Notice what is missing from the list: EI. Self-employed people do not pay EI premiums unless they register for the special benefits program, so none is in the table.

Why Alberta and BC come out lower

The federal piece is identical in all three columns: $7,755 at $75,000. The whole gap sits in the provincial line, which at $75,000 is about $3,964 in Ontario, $3,676 in Alberta and $3,215 in BC. Two things explain most of it. The first is the basic personal amount that each province lets you claim: $22,769 in Alberta, $13,216 in BC and $12,989 in Ontario, taxed at each province's lowest rate. That makes a credit worth $1,821.52 in Alberta (8%), $668.73 in BC (5.06%) and $655.94 in Ontario (5.05%) before anything else. The second is that Ontario adds a Health Premium (a flat $600 at this income) and, from about $95,000 of taxable income, a surtax. Alberta has neither. The gap between Ontario and BC then widens as income rises: 0.9 points at $75,000, 1.2 at $100,000, 1.5 at $125,000 and 2.1 at $150,000, because Ontario's surtax takes hold from about $95,000 of taxable income.

The comparison with an employee on the same number

A self-employed person pays the employer half of CPP as well as their own, and gets back only part of it as a deduction. The result is that the same headline number produces less take-home pay. The table compares an employee with a salary of S against a self-employed person with profit of S, both in Ontario. The employee pays CPP, CPP2 and EI premiums at their employee rates, and the self-employed person pays no EI.

To match the take-home pay of a $75,000 employee, a freelancer needs about $78,536 of profit, which is 4.7% more. The comparison understates the gap in benefits, since the employee also has EI coverage, and it omits the employee's other deductions. It also leaves out the self-employed person's business deductions, which can swing the comparison either way.

Set-aside on revenue, not profit

A percentage of profit is the right unit for the tax. The unit you actually see is revenue, because the invoice is the number in front of you. If expenses run at 20% of revenue, profit is 80% of revenue, and the share to set aside from each invoice is lower than the table's percentage.

A freelancer with a 20% expense ratio who expects $75,000 of profit can move $216 into a savings account for each $1,000 invoiced and be roughly on target. If expenses are 40% of revenue, the same $75,000 of profit needs $125,000 of invoices, and the figure falls to $162 per $1,000. This is the one number to adjust to your own costs. The pricing side of that ratio is in the markup vs margin guide, and the rest of the self-employed, gig and seller math hub covers fees and rates.

A lumpy year, and a rule of thumb that survives it

Freelance income rarely arrives in twelve equal pieces. The usual shortcut is to move a fixed share of every payment into savings, and a fixed share fails when income rises through the year. Take someone who earns $75,000 of profit in Ontario with slow winter months and a busy autumn.

At the end of the year the flat 25% has put $18,750 aside against a real bill of $20,212, a shortfall of $1,462 that arrives as a surprise at tax time. A better rule keys the percentage to profit to date, using the bands of the table above. In Ontario the bill for each slice of profit averages as follows.

Applied to the same year, the tiered rule moves 23% of profit into savings until profit reaches $50,000 (which happens in month 10) and 34.9% after that, ending at $11,495 + $8,717 = $20,212, the exact bill. The flat rule underestimates because it treats the first dollars and the last dollars alike, and the last dollars of a good year are taxed at nearly 35%. A high-income year with a late surge is where a flat percentage hurts most.

The same tiers for the other two provinces differ mostly in the last slice.

An Albertan or a British Columbian can use the same method with these rates. The Ontario figure for the last slice is higher because the surtax and the top of the Ontario brackets arrive there, which is why a good year in Ontario needs a larger share set aside than the same year in Alberta.

The next dollar of profit

The average rate in the first table is not the rate that matters for a decision about taking on one more client. The marginal rate is the tax and CPP on the next $1,000 of profit.

Three features shape these numbers. First, CPP is a flat 11.9% on every dollar between $3,500 and $74,600, so the marginal rate is high at low incomes where the income tax is low. Second, the marginal rate jumps near $40,000 because the Ontario Health Premium rises 6 cents on each dollar of taxable income between $36,000 and $38,500. Third, the peak, around $74,000 to $80,000, comes just before the CPP stops and CPP2 takes over at the lower 8% rate. Past $85,000 the CPP is fully paid, and the marginal rate drops by about 8 points, then climbs again as the income tax brackets and the Ontario surtax take over.

An expense against an RRSP contribution

Two ways to cut a self-employed tax bill are a business expense and an RRSP deduction, and they are not worth the same. An expense lowers profit, so it also lowers the CPP that is calculated on profit. An RRSP deduction lowers only taxable income. The table compares $5,000 of each, in Ontario.

At $50,000 of profit the expense is worth 9.6 points more per dollar because $595 of the saving is CPP, at 11.9% of the $5,000. At $100,000 the CPP is already at its maximum, so the two are identical per dollar; the expense still comes with a cost behind it, the money you spent, while the RRSP contribution keeps the money, locked in the plan. The point is not to spend money to save tax. It is that a legitimate expense you were going to incur anyway is worth more at the margin than the tax rate alone says, and that the CPP is a reason to keep careful records of costs in a low-income year.

Limits of these numbers

The tables model one person with only the basic personal amounts, in one of three provinces, for the 2026 tax year. They leave out the Canada Workers Benefit, the GST/HST credit, any dependants, provincial credits beyond the basic amount, the Ontario low-income credits, QPP in Quebec and a spouse's income. They also use the CRA's CPP and CPP2 rules for someone with only self-employment income. A person with a job as well as a business has CPP from both, which the CRA works out on Schedule 8, and that case is not modelled here. Your accountant or CRA's own tools can give a number for a real return, and tools such as the Canadian income tax estimator on this site can give a first estimate. The structure here is the part that holds: set aside against profit, count both halves of CPP, expect the marginal rate to peak near $75,000, and keep GST/HST apart.

Instalments, in one paragraph

Whether any of this bill has to be paid during the year depends on income tax alone: CPP does not count toward the CRA's $3,000 instalment test, so a $30,000 profit with $2,455 of tax and $3,154 of CPP usually owes no instalments, and a first-year business usually owes none either. The full rules, the three options and the interest are in the CRA instalments guide.

Turning the annual bill into a monthly transfer

If your income is steady enough to forecast, the simplest habit is a standing transfer to a separate account, sized from the expected annual profit. Divide the total bill by twelve for a monthly figure, or by four to line it up with the CRA instalment dates of March 15, June 15, September 15 and December 15.

Two cautions apply. The transfer should be revised when the forecast changes, since a good spring changes the expected bill for the whole year, and the tiered rule above is the quickest way to do that. And a standing transfer sized from last year's profit is a poor guide in the first year of a business, when there is no last year, and in a year after a big client leaves. In both cases the safer course is to start high and release money back to yourself when the return is filed.

GST/HST: money that was never yours

Part of an invoice may be GST or HST, which you hold for the government and should not count as income. A business is a small supplier, and does not have to register, if its sales do not exceed $30,000 over four consecutive calendar quarters. If revenue in a single calendar quarter goes over $30,000, you stop being a small supplier on the sale that took you over, you must register, and you have 29 days to do so. The set-aside in the tables above applies only to income, so a registrant's GST/HST collected should sit in a separate account.

EI is optional, and the benefits are narrow

Self-employed Canadians can opt into EI special benefits, which the government lists as maternity, parental, sickness (up to 26 weeks), family caregiver for children, family caregiver for adults and compassionate care. If you opt in, you pay premiums, and the registration rules, premium rates and qualifying period are on the government's self-employed EI pages. A self-employed parent considering maternity or parental benefits should read the EI maternity and parental guide before deciding, because the weekly amounts are the same as an employee's but the qualification route is different. Whether any of this must be paid during the year is answered in the CRA instalments guide.

Sources

• Government of Canada, CPP contribution rates, maximums and exemptions, 2026 (YMPE $74,600, exemption $3,500, maximum self-employed contribution $8,460.90): https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp/cpp-contribution-rates-maximums-exemptions.html (checked October 23, 2026)
• CRA, "The Canada Pension Plan enhancement: what it means for you" (self-employed 9.9% base and 2% first additional, 8% CPP2, credit and deduction treatment, the $75,000 example for 2026 of $8,460.90 plus $32): https://www.canada.ca/en/revenue-agency/news/2023/05/the-canada-pension-plan-enhancement--businesses-individuals-and-self-employed-what-it-means-for-you.html (checked October 23, 2026)
• CRA, T4127 Payroll Deductions Formulas, 122nd Edition (federal brackets, Ontario, Alberta and BC rates and basic amounts, Ontario surtax, Health Premium and tax reduction, BC tax reduction, federal basic personal amount phase-down): https://www.canada.ca/en/revenue-agency/services/forms-publications/payroll/t4127-payroll-deductions-formulas/t4127-jan/t4127-jan-payroll-deductions-formulas-computer-programs.html (checked October 23, 2026)
• CRA, "Income tax instalments" and "Options to calculate" (threshold, due dates, three options, no interest when paid in full): https://www.canada.ca/en/revenue-agency/services/payments/payments-cra/individual-payments/income-tax-instalments.html (checked October 23, 2026)
• CRA, GST/HST: when to register and charge (small supplier $30,000, four calendar quarters, 29 days): https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/when-register-charge.html (checked October 23, 2026)
• Government of Canada, EI benefits for self-employed people: https://www.canada.ca/en/services/benefits/ei/ei-self-employed-workers.html (checked October 23, 2026)
• Tables are hand calculations on those sheets for one person with basic amounts only. Ontario LIFT is not modelled here because it requires employment income.