When you have a regular job, your employer quietly takes the tax off every paycheque before you ever see the money. When you work for yourself, nobody does that. The full amount hits your account, it feels like yours, and then a tax bill arrives months later for money you’ve already spent. The fix is boring and it works: set a percentage aside from every single payment, the day it lands. Here’s the percentage, and the three things people forget to include in it.
The short answer: 25% to 30% of your net income
For most self-employed Canadians, setting aside 25% to 30% of your net income (what’s left after business expenses) covers the income tax and the CPP bill with a little buffer. If you’re in a higher bracket or a higher-tax province, push toward 30% or beyond.
But “a percentage” is a starting point, not a law of physics. The right number is really your marginal rate plus CPP, and the better you know it, the less you’ll over- or under-shoot. The 2026 tax brackets guide shows where your income lands, and the take-home pay calculator gives you a quick read on the income-tax slice for your province.
Now the three pieces that have to fit inside that percentage.
Piece 1: Income tax (the part you expected)
This is the straightforward one. Your net business income gets added to any other income and taxed at the regular brackets — the same federal and provincial rates everyone pays. Nothing special about being self-employed here, except that nobody withheld it for you.
If freelancing is your only income, a chunk of it is sheltered by the basic personal amount (the income everyone earns tax-free — $16,452 federally in 2026), so your average rate is lower than your bracket suggests. If you’ve got a day job on top, your freelance dollars stack on top of that salary and get taxed at your higher marginal rate from the first dollar. That second case is the one where people under-save and get a nasty surprise.
Piece 2: CPP — and you pay both halves
Here’s the cost almost nobody budgets for. An employee splits the Canada Pension Plan bill with their employer. When you’re self-employed, you are both — so you pay the whole thing.
For 2026 that’s 11.9% of your net business income between $3,500 and $74,600 — as much as about $8,460 a year. Above $74,600 there’s a second slice (8% up to $85,000, another ~$832). That’s on top of your income tax, and it’s why a freelancer earning $70,000 can owe noticeably more than an employee earning the same salary.
It’s not all loss — those contributions buy you CPP retirement benefits later, and you get to deduct half of what you pay against your taxable income, which softens the income-tax side a little. But for set-aside purposes, treat the full amount as a real bill. It’s the single biggest reason “just save 20%” leaves people short.
One thing you don’t pay automatically: Employment Insurance. Self-employed people aren’t in EI unless they deliberately opt in for special benefits like parental leave. So there’s no EI line — but also no EI safety net unless you’ve signed up.
Piece 3: GST/HST — money that was never yours
This one isn’t a tax on you at all, which is exactly why it’s dangerous.
Once your business revenue crosses $30,000 over four consecutive calendar quarters (or in a single quarter), you’re required to register for GST/HST, start charging it on your invoices, and send it to the CRA. The trap: that sales-tax money shows up in your account mixed in with your actual income, and it is not yours to spend. You’re just holding it for the government.
If you’re registered, keep the GST/HST you collect in a separate account from day one, completely apart from your income-tax savings. People who blur the two end up spending the government’s money and scrambling at filing time. (Registering also lets you claim back the GST/HST you paid on business expenses, so it’s not pure overhead — but the collected tax still isn’t income.)
The instalment trap
For your first year or two, you pay your whole tax bill at once when you file. Then the CRA changes the rules on you.
If you owe more than $3,000 in net tax (over $1,800 in Quebec) in the current year and in one of the two previous years, the CRA expects you to pay next year’s tax in quarterly instalments — due March 15, June 15, September 15, and December 15 — instead of in one lump. Miss them and they charge interest.
This catches people because nothing announces it; you just get a notice, or you find out when interest appears. If your self-employment income is steady and above the threshold, assume instalments are coming and keep your set-aside account funded so the quarterly payments are painless.
A system that actually holds up
The percentage only works if it’s automatic. What works in practice:
- Open a separate savings account just for tax. A high-interest one, so the money earns a little while it waits.
- The day a client pays you, move your set-aside into it — 25% to 30% for income tax and CPP. Before you do anything else with the money.
- If you’re GST/HST-registered, move the sales tax too, into its own separate account. Two buckets, never mixed.
- Review every quarter. Add up what you’ve earned, sanity-check your set-aside against your real bracket, and adjust the percentage if your income is climbing.
Do this and tax season stops being an event. The money’s already there. You’re just forwarding it.
Bottom line
Set aside 25% to 30% of your net self-employed income from every payment, the moment it arrives — and know that the number has to cover three things, not one: income tax at your bracket, the full CPP bill (11.9%, up to about $8,460 in 2026, because you pay both halves), and GST/HST if you’re registered (which was never your money). Watch for the instalment notice once you owe more than $3,000. A separate account and a fixed habit turn the whole thing into a non-event.
Sources
- GST/HST registration threshold ($30,000 over four consecutive quarters). CRA — When to register for and start charging the GST/HST.
- Income-tax instalments: required when net tax owing exceeds $3,000 ($1,800 in Quebec); quarterly due dates. CRA — Who has to pay: Required tax instalments for individuals.
- 2026 CPP rates and maximums; self-employed pay both the employee and employer share (11.9%). CRA — CPP contribution rates, maximums and exemptions.
- Self-employment income, expenses, and filing basics. CRA — Self-employed Business, Professional, Commission, Farming, and Fishing Income (T4002).
All sources accessed 2026-06-08. Thresholds and rates change yearly; confirm against canada.ca before relying on a specific number.
Educational only, not financial or tax advice. Your set-aside percentage depends on your income, province, and expenses. See the disclaimer for the full version.