CRA Tax Guide for Self-Employed Trades in Ontario

Running your own trades business in Ontario means dealing with the CRA. Taxes aren't complicated once you understand the basics, but getting them wrong can cost you thousands in penalties, missed deductions, or surprise bills. This guide covers the essentials every self-employed tradesperson needs to know.

Sole Proprietor vs. Incorporated: What's the Difference?

Most tradespeople start as sole proprietors. It's the default — you earn income, report it on your personal T1 return, and pay tax at your personal rate. Simple.

Incorporating means creating a separate legal entity (a corporation) that earns income and files its own T2 tax return. The corporation pays the small business tax rate (currently 12.2% combined federal and Ontario on the first $500,000 of active business income), which is significantly lower than most personal rates. You then pay yourself a salary, dividends, or a combination.

Key differences for tax purposes:

Sole proprietor: Business income goes directly on your personal return (Form T2125). You pay personal income tax plus both portions of CPP. Simpler bookkeeping. Filing deadline is June 15, but any tax owing is still due April 30.
Incorporated: The corporation files a T2 return (due 6 months after fiscal year-end). You pay yourself a salary (which creates CPP obligations and payroll deductions) or dividends (no CPP, but no RRSP room created). More paperwork, but better tax planning opportunities.

Incorporation generally starts making sense when you're consistently earning over $100,000 in net business income and can leave money inside the corporation. Talk to an accountant before making the switch — the setup costs, annual filing fees, and added complexity don't always pay off for smaller operations.

HST Registration

When It's Mandatory

You must register for an HST account when your revenue exceeds $30,000 in any four consecutive calendar quarters (or in a single quarter). Once you cross that threshold, you're required to register within 29 days and start charging HST on your services.

This is total revenue, not profit. If you invoice $35,000 in a year but your expenses are $20,000, you still blew past the threshold.

Voluntary Registration

You can register before hitting $30,000 — and in most cases, you should. Here's why: if you're buying materials, tools, and supplies for your business, you're paying HST on all of it. Without an HST number, that 13% is just a cost. With one, you can claim it back as an input tax credit (ITC).

If you're doing commercial work, your clients expect to see HST on your invoices. Not having an HST number can make you look like a hobbyist, not a professional.

HST Collected vs. HST Paid: Input Tax Credits

The concept is straightforward:

You collect 13% HST on the services and products you sell
You pay 13% HST on the business supplies, materials, and services you buy
You remit the difference to the CRA

Example: You invoice $10,000 + $1,300 HST in a quarter. You spend $4,000 + $520 HST on materials and business expenses. You owe CRA $1,300 - $520 = $780.

If your ITCs exceed what you collected (common in months with big equipment purchases), CRA sends you a refund.

Important: Keep every receipt. You can only claim ITCs if you have documentation showing the supplier's HST number, the amount of tax paid, and what was purchased. A credit card statement alone won't cut it.

Filing Frequency

Depending on your revenue, you'll file HST returns annually, quarterly, or monthly. Most sole-prop tradespeople file annually (if under $1.5 million in revenue) or quarterly. You can request quarterly filing even if you qualify for annual — this means smaller remittances and more frequent ITC refunds.

Common Deductible Expenses

This is where most trades leave money on the table. Everything you spend to earn business income is potentially deductible.

Vehicle Expenses

Your truck is probably your biggest deductible expense. You have two options:

Logbook method: Track every kilometre driven for business over a representative period (at least one full year to start, then a three-month sample in subsequent years). Calculate the business-use percentage and apply it to all vehicle costs — fuel, insurance, maintenance, financing interest, licence, registration.
Simplified method (flat rate): CRA sets a per-kilometre rate (currently around $0.70 for the first 5,000 km, $0.64 after that). Multiply your business kilometres by the rate. Simpler, but often results in a lower deduction than the logbook method for tradespeople who drive a lot.

Which is better? For most tradespeople, the logbook method wins. If you're driving a truck that costs $800/month in payments, burns through fuel, and racks up 30,000+ business kilometres per year, the actual costs will far exceed the simplified rate. But you must keep a logbook.

Tools and Equipment

Tools under $500 can generally be deducted in full in the year of purchase. Larger purchases fall under Capital Cost Allowance (more on that below). The tradesperson's tools deduction allows employed tradespeople to deduct the cost of eligible tools above $1,000 — but if you're self-employed, you're already deducting tools as a business expense, so this specific deduction doesn't apply to you.

Materials and Supplies

Everything you buy for a job — lumber, wire, pipe, fasteners, concrete, drywall, paint — is deductible. Keep receipts organized by project.

Insurance

Commercial general liability (CGL): Fully deductible
WSIB premiums: Fully deductible as a business expense. If you're unclear on WSIB requirements, read our complete WSIB guide for Ontario trades
Errors and omissions (E&O): Deductible if required for your trade
Commercial auto insurance: Deductible (business-use portion if vehicle is mixed use)

Phone and Internet

Deduct the business-use percentage. If you use your phone 70% for business, deduct 70% of the monthly bill. Same for internet if you work from home.

Home Office

If you use part of your home regularly and exclusively for business (or as your principal place of business), you can deduct a proportional share of:

Rent or mortgage interest (not principal)
Property taxes
Utilities (heat, hydro, water)
Home insurance
Maintenance and minor repairs

Calculate the percentage based on the square footage of your office or workspace relative to your total home. A dedicated room that's 10% of your home means you deduct 10% of those costs. Note: home office expenses cannot create or increase a business loss.

Advertising and Marketing

Website costs, business cards, online ads, trade show fees, vehicle wraps, signage — all deductible.

Subcontractor Payments

Amounts paid to subcontractors are fully deductible. You'll need to file T5018 slips (Statement of Contract Payments) if you're in the construction industry and pay subcontractors more than $500 in a calendar year. Missing these filings is a common audit trigger.

Professional Development

Courses, certifications, trade licences, Code book updates, safety training (WHMIS, working at heights) — all deductible. Conference and seminar fees, including related travel, also qualify.

Meals and Entertainment

Business meals (with clients, subs, or for networking purposes) are 50% deductible. Keep a record of who you met with and the business purpose.

Capital Cost Allowance (CCA)

When you buy something expensive for your business — a truck, a skid steer, a $3,000 table saw — you generally can't deduct the full cost in one year. Instead, you claim a percentage each year through Capital Cost Allowance.

Key CCA classes for trades:

Class 10 (30%): Vehicles costing under $37,000 (before tax)
Class 10.1 (30%): Passenger vehicles costing over the prescribed limit (currently around $37,000). Special rules apply — one vehicle per class, no terminal loss
Class 8 (20%): Miscellaneous equipment, furniture, tools over $500
Class 12 (100%): Tools under $500 (fully deductible in the year of purchase)
Class 50 (55%): Computer equipment

Under the Accelerated Investment Incentive Property (AIIP) rules, you can claim up to 1.5 times the normal CCA rate in the first year the asset is put into service. This significantly speeds up the deduction for big purchases.

Example: You buy a $50,000 work truck. In the first year, instead of claiming 30% on half the cost (the old half-year rule), you can claim 30% on 1.5 times the cost — a much larger first-year deduction.

Quarterly Tax Instalments

Who Needs to Pay Them

If your net tax owing (federal or provincial) is more than $3,000 in the current year and in either of the two previous years, CRA expects you to pay quarterly instalments. They'll send you instalment reminders with suggested amounts.

When They're Due

March 15
June 15
September 15
December 15

What Happens If You Don't Pay

CRA charges instalment interest on late or missed payments. The interest rate fluctuates but is typically in the 8-10% range. They can also charge a penalty if your instalment interest exceeds $1,000. This is real money — don't ignore those instalment notices.

Pro tip: Set aside 25-30% of every payment you receive into a separate savings account for taxes. Quarterly instalments are much less painful when the money is already sitting there.

Record Keeping

What CRA Requires

CRA requires you to keep records that support your income and expense claims. This includes:

Invoices (issued and received)
Receipts for all business purchases
Bank statements and cancelled cheques
Vehicle logbook (if claiming vehicle expenses)
Contracts and agreements
Payroll records (if you have employees or pay subs)
HST returns and supporting documents

How Long to Keep Them

Six years from the end of the tax year they relate to. If you filed your 2025 return in 2026, keep those records until at least 2031. If you filed an objection or appeal, keep records until the issue is resolved and the six-year clock restarts.

Tools That Help

You don't need fancy software, but it helps. QuickBooks Self-Employed, Wave (free), or FreshBooks can track income and expenses, store receipt photos, and generate reports your accountant will thank you for. At minimum, keep a spreadsheet and a folder of receipt photos organized by month.

Contractor vs. Employee: The CRA Test

This matters more than most tradespeople realize. CRA looks at several factors to determine whether someone is an independent contractor or an employee:

Control: Does the payer control how, when, and where the work is done?
Tools and equipment: Does the worker provide their own?
Financial risk: Can the worker profit or lose money on the job?
Integration: Is the worker's business integrated into the payer's, or are they independent?
Specific result: Is the worker hired to achieve a specific result, or to provide ongoing services?

Why It Matters

If CRA reclassifies a "contractor" relationship as employment:

The payer owes back CPP contributions (employer's share), EI premiums, and penalties
The worker may owe CPP and EI contributions they should have been paying
Both parties face potential reassessment going back multiple years
HST collected by the "contractor" may need to be reversed

If you're working exclusively for one company, using their tools, following their schedule, and have no opportunity for profit or risk of loss, CRA will likely consider you an employee regardless of what your contract says.

Filing Deadlines

Sole Proprietors

June 15: Deadline to file your T1 personal return (which includes your T2125 business income)
April 30: Deadline to pay any tax owing. Yes, you get extra time to file, but not extra time to pay. Interest starts May 1 on any unpaid balance

Corporations

Six months after fiscal year-end: T2 corporate return due
Two months after fiscal year-end (three months for small CCPCs): Corporate tax owing is due

HST

Annual filers: Three months after the end of your fiscal year
Quarterly filers: One month after the end of each fiscal quarter

Common Mistakes

Mixing personal and business finances. Open a separate business bank account and a dedicated business credit card. Run all business income and expenses through them. This alone prevents half the headaches at tax time and looks far better if CRA audits you.

Not saving for tax. As a self-employed tradesperson, no one is withholding tax from your income. If you earn $100,000 net, your combined federal and provincial tax bill could easily be $25,000-$30,000 or more. Set money aside with every deposit, not in April.

Forgetting about CPP — both portions. As a sole proprietor, you pay both the employee and employer shares of CPP. For 2026, that can mean over $8,000 in CPP contributions alone. Budget for this. It's separate from income tax and catches a lot of first-time self-employed tradespeople off guard.

Not tracking vehicle kilometres. CRA auditors love challenging vehicle expense claims. Without a logbook, your entire vehicle deduction is at risk. Start a logbook today — even a simple app on your phone works.

Missing T5018 filings. If you pay subcontractors in construction, you need to report those payments. Failure to file T5018 slips is a known CRA audit trigger.

Claiming 100% business use on a personal vehicle. Unless you have a second personal vehicle and can prove you never use your work truck for personal errands, claiming 100% business use is a red flag. Be honest and document your actual usage.

Get Organized, Get Connected

Tax compliance is part of running a professional trades business. Getting it right means more money in your pocket, fewer surprises from CRA, and less stress at year-end.

TradeBench helps Ontario tradespeople and contractors build a trusted professional network, connect with the right partners, and grow their business. If you're looking to find reliable subs, connect with GCs, or build your reputation in the trades community, join TradeBench today.

Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax rules change frequently and individual circumstances vary. Always consult a qualified accountant or tax professional for advice specific to your situation. TradeBench is not a tax advisory service.