Nobody withholds tax from freelance income in Canada, so your set-aside habit is your payroll department. This guide shows what share of your profit to move aside for income tax and CPP in 2026, works the full calculation on an Ontario profit of 80,000 dollars, and lines the pot up with the CRA’s quarterly instalments.
How much tax should a self-employed Canadian set aside?
Most self-employed Canadians should set aside 20 to 30 percent of their profit, not their revenue. On 60,000 dollars of Ontario profit in 2026, the combined income tax and CPP bill comes to about 24 percent. Higher profits, and provinces with higher rates, push the share toward 30 percent.
That range is a planning habit, not a CRA rule. The Canada Revenue Agency (CRA) never publishes a set-aside percentage, because your real bill depends on your province, your profit and your credits. What the CRA does publish is every rate and threshold behind the bill, and this guide builds the percentage from those figures so you can see exactly where it comes from.
You want a percentage you can apply to every payment you receive, and confidence the pot covers the bill in April. Both are below. For the broader picture of what self-employed Canadians owe, see our guide to self-employed taxes in Canada.
One point drives everything else: income tax and CPP are charged on your net business income, your revenue minus the business expenses you claim on form T2125, the Statement of Business or Professional Activities. Bill 90,000 dollars and spend 15,000 dollars on software, subcontractors, travel and your home office, and you are taxed on 75,000 dollars of profit.
The workable habit: every time a client pays you, move your percentage of that payment into a separate savings account, then true it up against your actual profit each quarter as your expenses land.
Tip: Automate the transfer for the day each invoice is paid. A percentage moved on payment day is painless; the same amount found in April is a crisis. If your invoicing is irregular, sweep the account weekly instead.
Not sure what is left after your costs on a given job? Run the numbers through LancerBill’s profit margin calculator before you quote, so the profit you set aside from is real rather than hoped for.
The 2026 rates behind the percentage
Your bill has two main parts: income tax (federal plus provincial) and Canada Pension Plan contributions. Self-employed Canadians pay both halves of CPP, the employee half and the employer half, which is the single biggest reason the set-aside percentage surprises people moving from a paycheque.
| 2026 federal income tax | Rate |
|---|---|
| First 58,523 dollars of taxable income | 14 percent |
| 58,523 to 117,045 dollars | 20.5 percent |
| 117,045 to 181,440 dollars | 26 percent |
| 181,440 to 258,482 dollars | 29 percent |
| Above 258,482 dollars | 33 percent |
The federal basic personal amount for 2026 is 16,452 dollars, claimed as a credit at 14 percent, so it takes up to 2,303 dollars off your federal bill. Your province adds its own brackets and its own basic personal amount on the same return. Ontario, used in the worked example below, taxes the first 53,891 dollars at 5.05 percent and the next slice, up to 107,785 dollars, at 9.15 percent, with a basic personal amount of 12,989 dollars.
CPP for 2026 works like this. Contributions apply to pensionable earnings between the 3,500 dollar basic exemption and the year’s maximum pensionable earnings (YMPE) of 74,600 dollars. The self-employed rate is 11.9 percent, so the maximum first-tier contribution is 8,460.90 dollars. A second tier, CPP2, applies to earnings between 74,600 and 85,000 dollars (the YAMPE) at a self-employed rate of 8 percent, capped at 832 dollars. Quebec residents pay into the Quebec Pension Plan (QPP) through Revenu Québec instead, on a similar structure.
Two reliefs soften the CPP bill. The base portion of your contributions earns a non-refundable tax credit, federal and provincial. The rest, the employer-equivalent share and the CPP enhancement portions, is deducted from your income before tax is calculated. The worked example shows both.
Employment Insurance is opt-in only. You pay no EI premiums unless you register for the EI special benefits program (parental, sickness and similar benefits), and claims generally wait 12 months after registering. Most freelancers leave EI out of the percentage.
Worked example: a profit of 80,000 dollars in Ontario
Assumptions: you are an Ontario sole trader with 80,000 dollars of net business income in 2026, no other income, no RRSP contributions, and only the basic personal amount and CPP credits claimed. Here is the bill, step by step.
Step 1: CPP contributions. Your profit is above the YMPE, so the first tier is maxed out: (74,600 minus 3,500) times 11.9 percent = 71,100 times 0.119 = 8,460.90 dollars. CPP2 applies to the slice above the YMPE: (80,000 minus 74,600) times 8 percent = 5,400 times 0.08 = 432 dollars. Total CPP: 8,892.90 dollars.
Step 2: Taxable income. The credit portion of CPP is the employee-equivalent base amount: 71,100 times 4.95 percent = 3,519.45 dollars. Everything else you paid is deductible: 8,892.90 minus 3,519.45 = 5,373.45 dollars. Taxable income: 80,000 minus 5,373.45 = 74,626.55 dollars.
Step 3: Federal tax. First bracket: 58,523 times 14 percent = 8,193.22 dollars. Second bracket: (74,626.55 minus 58,523) = 16,103.55 times 20.5 percent = 3,301.23 dollars. Gross federal tax: 11,494.45 dollars. Credits: basic personal amount 16,452 times 14 percent = 2,303.28 dollars, plus CPP credit 3,519.45 times 14 percent = 492.72 dollars, total 2,796 dollars. Federal tax owing: 8,698.45 dollars.
Step 4: Ontario tax. First bracket: 53,891 times 5.05 percent = 2,721.50 dollars. Second bracket: (74,626.55 minus 53,891) = 20,735.55 times 9.15 percent = 1,897.30 dollars. Gross Ontario tax: 4,618.80 dollars. Credits: basic personal amount 12,989 times 5.05 percent = 655.94 dollars, plus CPP credit 3,519.45 times 5.05 percent = 177.73 dollars, total 833.67 dollars. Ontario tax owing: 3,785.13 dollars. That sits below Ontario’s 5,818 dollar surtax threshold, so no surtax applies. Add the Ontario health premium of 750 dollars, which applies at this income level.
Step 5: The total and the percentage. Income tax 12,483.58 dollars, plus CPP 8,892.90 dollars, plus the health premium 750 dollars, gives a total bill of 22,126.48 dollars. Divided by 80,000 dollars of profit, that is 27.7 percent. Set aside 28 percent and this bill is covered, roughly 277 dollars from every 1,000 dollars of profit, or about 1,844 dollars a month.
Tip: Notice what CPP did to the percentage. Income tax alone is about 16 percent of this profit. Anyone who sets aside “their tax rate” and forgets the 11.9 percent CPP layer arrives in April roughly 9,000 dollars short on this income.
Set-aside percentages at other profit levels
Running the same method at other profit levels shows why one flat rule of thumb misleads. The percentage climbs as profit climbs, because more of your income lands in higher brackets while CPP keeps charging until its ceilings.
| Net profit (Ontario, 2026) | Income tax | CPP | Health premium | Total bill | Set aside |
|---|---|---|---|---|---|
| 40,000 dollars | 3,833 | 4,344 | 300 | 8,477 | 22 percent |
| 60,000 dollars | 7,279 | 6,724 | 600 | 14,603 | 25 percent |
| 80,000 dollars | 12,484 | 8,893 | 750 | 22,126 | 28 percent |
| 100,000 dollars | 18,295 | 9,293 | 750 | 28,338 | 29 percent |
Figures are rounded and use the same assumptions as the worked example: basic personal amount and CPP credits only, no RRSP deduction, no surtax triggered. Your province shifts the answer. Alberta’s lower provincial rates pull the percentage down a little; Quebec and the Atlantic provinces push it up. Treat the table as your starting percentage for the current year, then adjust it after your first return shows your real effective rate.
Rule of thumb: set aside the percentage from your profit band, round it up, and let the surplus become your buffer. A pot that ends the year slightly fat is a bonus. A pot that ends it short is a loan from the CRA at instalment interest rates.
Keep GST/HST in a separate pot
If you are registered for GST/HST, the tax you collect on invoices is never your money. It belongs to the CRA from the moment it lands, offset only by the input tax credits on your own purchases. Mixing it into your income tax pot is the most common reason self-employed Canadians end the year short.
Run three pots instead. Pot one: income tax and CPP, at your percentage from the table. Pot two: net GST/HST collected, moved in full on payment day. Pot three, optional but wise: a small buffer for the gap between your estimate and the real bill. If you are near the registration line, our guide on when Canadian freelancers must register for GST/HST explains the 30,000 dollar small-supplier rule, and the GST calculator helps you split tax out of tax-inclusive prices. What belongs on the invoice itself is covered in our guide to invoicing as a freelancer in Canada.
When do you have to pay instalments to the CRA?
You must pay quarterly instalments if your net tax owing is more than 3,000 dollars in the current year and was also more than 3,000 dollars in either of the two previous years. In Quebec the threshold is 1,800 dollars. Payments are due on March 15, June 15, September 15 and December 15.
Net tax owing is your tax bill after credits and after any tax already withheld, and it includes your CPP contributions, which is why self-employed people cross the threshold sooner than they expect. First-year freelancers usually owe no instalments, because the test looks back at the two previous years. From your second year on, assume instalments apply.
The CRA gives you three ways to work out each payment: the no-calculation option (pay the amounts on the instalment reminders sent in February and August), the prior-year option (base payments on last year’s bill), and the current-year option (estimate this year’s bill yourself). The current-year option suits a business whose income has dropped, but underpay and the CRA charges instalment interest, compounded daily, on the shortfall. Your pot funds these payments: a quarter goes out on each instalment date.
Watch out: Your filing deadline and your payment deadline are different dates. Self-employed Canadians file by June 15, but any balance owing is due April 30. Interest runs from May 1 on money you do not pay until June, even though your return is not late.
Build the routine around the money coming in. Issue clean invoices with a tool like the invoice generator, move your percentage the day each payment lands, and let the four instalment dates empty the pot on schedule.
Mistakes that leave self-employed Canadians short
Forgetting CPP entirely. Employees see roughly half the CPP cost on a pay stub and employers quietly pay the rest. You pay both halves, up to 9,292.90 dollars in 2026. It is part of the set-aside percentage, not an extra.
Keeping one percentage all year. A percentage that fit a 40,000 dollar year under-saves in an 80,000 dollar year. Re-check your band in the table each time your run-rate profit jumps.
Spending the GST/HST. Collected tax sitting in your main account looks like income. It is not. Move it to its own pot on payment day, every time.
Guessing from last year’s refund. A refund in a slow year says nothing about a strong year. Base the percentage on your current profit band, and base instalments on whichever CRA option fits this year’s income.
Missing April 30. The June 15 filing deadline fools people every year. The balance is due April 30, and late balances attract interest and, if the return is also late, penalties on top.
Key takeaways
- Set aside 20 to 30 percent of profit, not revenue: about 22 percent at 40,000 dollars of Ontario profit, rising to about 29 percent at 100,000 dollars in 2026.
- CPP is the hidden layer. Self-employed Canadians pay both halves, 11.9 percent up to the 74,600 dollar ceiling, plus CPP2 at 8 percent up to 85,000 dollars.
- Keep three pots: income tax and CPP, GST/HST collected, and a small buffer. Collected GST/HST is never your money.
- Instalments are due March 15, June 15, September 15 and December 15 once your net tax owing passes 3,000 dollars (1,800 dollars in Quebec) in the current year and either of the two prior years.
- Your balance is due April 30 even though your return is due June 15. Interest runs from May 1.
Frequently asked questions
Is the 25 to 30 percent set-aside a CRA rule?
No. The CRA publishes rates, brackets and CPP thresholds, never a set-aside percentage. The 20 to 30 percent range is what those published figures produce at typical freelance profit levels once federal tax, provincial tax and both halves of CPP are added together. Your real share depends on your province, profit and credits.
Do I set aside tax on what I bill or on my profit?
On your profit. Income tax and CPP are charged on net business income, your revenue minus claimable business expenses, as reported on form T2125. If you apply the percentage to each invoice payment as it arrives, reconcile quarterly against your actual profit so expenses pull the pot back in line.
Should GST/HST go into the same account as my tax savings?
Keep it separate. GST/HST you collect belongs to the CRA, reduced only by input tax credits on your business purchases, and it is remitted on its own schedule. A separate pot stops collected tax quietly funding your income tax instalments, which leaves you short at GST/HST filing time instead.
I live in Quebec. What changes?
You contribute to the Quebec Pension Plan (QPP) through Revenu Québec rather than CPP, you file a separate Quebec return, and your instalment threshold is 1,800 dollars of net tax owing instead of 3,000 dollars. The set-aside habit is identical, but run your percentage at the top of the range, since combined Quebec rates are among the highest in Canada.
My filing deadline is June 15. When is the money actually due?
April 30. Self-employed Canadians and their spouses get until June 15 to file, but any balance owing for the tax year is due April 30, and the CRA charges interest from May 1 on unpaid balances. If you pay by instalments during the year, the April balance is usually small.
Do self-employed Canadians have to pay EI premiums?
Not by default. Employment Insurance is opt-in for the self-employed, and registering gives access to special benefits such as parental, sickness and caregiving benefits, generally after a 12-month waiting period. You cannot claim regular EI benefits for lost work as a self-employed person, so most freelancers leave EI out of their set-aside percentage.
Rates last reviewed: October 2026. Figures are drawn from the Canada Revenue Agency’s published 2026 federal brackets, basic personal amount and CPP contribution tables, and Ontario’s published 2026 brackets.
This guide is for general information only and is not financial, tax or legal advice.