One of the most common questions among freelancers, contractors, and small business owners in Canada is, “Will I get a tax refund if I’m self-employed?” The answer isn’t always straightforward. While employees often see a tax refund after filing their return, the self-employed tax process is a little different—but yes, it is still possible to get a refund, depending on your circumstances.
What It Means to Be Self-Employed in Toronto
Being self-employed means you run your own business or work freelance. You aren’t paid through a regular paycheck; instead, you get paid directly by clients or customers. In Canada, this means you are responsible for reporting your income to the government. You'll need to file taxes each year and pay what you owe. It’s also up to you to keep track of your earnings and expenses.
Understanding How Self-Employed Taxes Work in Canada
If you're self-employed in Canada, you’re required to report your business income on your T1 personal tax return, usually through the T2125 form (Statement of Business or Professional Activities). Unlike employees whose taxes are deducted at source, self-employed individuals are responsible for calculating and paying their own income tax, CPP contributions, and possibly GST/HST if registered.
Since taxes aren’t automatically deducted from your income, many self-employed Canadians end up owing money at tax time. However, that doesn’t mean a refund isn’t possible.
Can Self-Employed Canadians Get a Tax Refund?
Yes, self-employed individuals in Canada can receive a tax refund. This typically happens when your total tax credits and payments exceed your calculated tax liability. Common situations that lead to refunds include overpaying instalments, RRSP contributions, and claiming a high amount of business deductions that lower your net income.
Refunds can also come from refundable tax credits, such as the GST/HST credit, Canada Workers Benefit (CWB), or Canada Child Benefit (CCB). Even though self-employed taxes can feel more complex, you're entitled to many of the same credits and benefits as employed individuals.
Tax Credits That Can Increase Your Refund
Canada offers a variety of non-refundable and refundable tax credits that can help reduce your taxes or increase your refund. For example, the GST/HST credit, the Canada Workers Benefit (CWB), and the Canada Child Benefit (CCB) may be available to eligible self-employed Canadians.
You can also claim credits for things like medical expenses, tuition, and RRSP contributions, all of which may reduce your overall tax liability. If your total credits and payments exceed your tax owed, you’ll receive a refund.
Some common refundable credits that apply to self-employed Canadians include:
- GST/HST Credit
- Canada Workers Benefit (CWB)
- Climate Action Incentive
- Canada Child Benefit (CCB)
Claiming these credits—especially if you’re in a lower income bracket—can significantly improve your refund chances.
Business Deductions That Reduce Your Taxable Income
One of the biggest advantages of being self-employed in Canada is the ability to claim a wide range of tax-deductible business expenses. These can include:
- Home office expenses (a portion of rent, utilities, internet)
- Vehicle expenses (fuel, insurance, maintenance, based on business-use percentage)
- Office supplies, software, and tools
- Professional fees (accounting, legal, consulting)
- Marketing and advertising costs
By lowering your net business income, these deductions reduce the amount of income tax you owe, which can ultimately increase your chances of getting a refund.
CPP Contributions and Their Effect on Your Tax Return
As a self-employed person, you're required to contribute both the employee and employer portions of CPP contributions, which can significantly increase your total tax bill. However, this contribution also counts as a deduction and can reduce your taxable income. While this doesn’t directly result in a refund, it can influence how much tax you owe or get back.
The Importance of Record Keeping and Accurate Filing
To maximize your chances of getting a tax refund—or minimizing what you owe—accurate bookkeeping and tax planning are essential. Maintaining clear records of your income, receipts, and expenses throughout the year helps ensure you claim everything you’re entitled to and avoid costly mistakes.
Working with a qualified tax professional or using specialized tax software for self-employed Canadians can also help you optimize your tax return and increase your chances of a refund.
Common Challenges and Mistakes in Claiming Refunds
Overlooking Deductible Expenses: Many self-employed people forget some deductions. Missing these means paying more taxes than necessary. Keep all receipts and document your business costs carefully.
Underestimating Income or Overestimating Expenses: Overstating expenses raises red flags and could lead to an audit. Be honest and accurate with your income and expense reports.
Failing to File on Time: The deadline to file your taxes as a self-employed person in Toronto is June 15, but any taxes owed are due by April 30. Filing late can result in fines or interest charges, so mark your calendar.
Final Thoughts: A Refund Is Possible—With the Right Planning
While being self-employed in Canada usually means greater responsibility at tax time, it doesn’t mean you're excluded from receiving a refund. If your business deductions, credits, and instalments line up favourably, you may see money coming back after you file your return.
To improve your refund potential, make sure you’re tracking your expenses carefully, staying on top of your instalments, and taking advantage of all available tax credits and deductions. And if you’re unsure, it always pays to consult a professional—especially when the CRA is involved.
Tax Professionals and Accountants in Toronto
A professional accountant can save you money and stress. Look for someone experienced with self-employment taxes. They will provide customized advice. Finding the right professional can make a big difference.
Connect with Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step toward proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.