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"" Self-employed? Manage your finances like a boss.

Self-employed? Manage your finances like a boss.

Being self-employed comes with perks. You get to set your own hours and do what you love. But it also comes with responsibilities. Here are a few financial considerations you should be aware of.

Written by Tamara Young
on June 15, 2023
Illustration Inna Gertsberg

Many of us dream of the day we’ll finally have the opportunity to launch our very own business. Or perhaps become a consultant, go freelance … or maybe expand that side hustle. After all, who wouldn’t like to be their own boss, set their own hours and pursue their passion full time? According to Statistics Canada, approximately 2.6 million Canadians are self-employed — that’s about one in every 14 citizens. For context there were 1.2 million individuals who ran their own business in 1976. Self-employed Canadians currently make up 13% of total employment. 1

While there are certainly many perks to being self-employed, there are also some important financial considerations to be aware of. Consider this for a moment: When you work a typical nine-to-five, a significant share of your financial administration is done for you. Your paycheque arrives on the same day every two weeks, a portion of those funds is removed for taxes and employment insurance, and you may even have a corporate pension waiting for you. When you’re self-employed, things aren’t always so simple.

Whether you’re newly self-employed, been doing it for years or simply dreaming of the day you take the leap, here are a few important questions to consider.

Are you putting aside enough money for tax time?

If you’re self-employed, you’ll need to start thinking about tax season well before March or April. In fact, you’ll probably need to think about it every time you bring in any income.  Since self-employed income arrives “pre-tax”  that means, come tax season, you’ll owe a percentage of the income you received the previous year in federal income tax.

One of the biggest challenges freelancers have is putting away money for taxes — both income and GST/HST.

Your tax bill will also include amounts owing for provincial income tax and Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions, as well as Goods and Services Tax (GST) or Harmonized Sales Tax (HST) and Employment Insurance (EI) — if you’ve opted into the latter. Those who pay into EI have access to special benefits, including maternity, caregiver and sickness relief. To cover your entire tax bill, you may need to set aside anywhere from 25–30% of your gross income. Rather than wait for tax season to arrive, however, it may be wise to start putting aside the necessary funds each time you receive payment for your work into a separate bank account. That way, you won’t accidentally spend the funds intended to pay your taxes. The CRA may also require you to pay your taxes in installments, depending on your situation and the amount of tax owing.

Bryan Borzykowski, a former freelancer who now runs his own company, ALLCAPS Content, in Winnipeg says, “I would say the biggest mistake I have made over the years, and one of the biggest challenges freelancers have, is putting money away for taxes — both income and GST/HST. It can be hard to know how much to set aside, so it’s a good idea to try and understand what tax bracket you might be in. Big tax bills are hard to cover without preparation, especially if you’ve already spent those tax dollars on something else.”

When assessing your individual tax obligations, it’s important to consider all of your income sources. If you fail to report an income source on your tax filing, you might incur a penalty. To learn more about self-employed tax obligations, visit the Canada Revenue Agency (CRA) website.

Are you taking advantage of all the tax credits and deductions you qualify for?

Did you know that as a self-employed Canadian, the money you spend on running your business can be considered a business expense? For example, if you work from home, you may be eligible to deduct expenses for the business use of a workplace in your home. Some other examples of deductible expenses may include: business advertising fees, vehicle expenses, office supplies, utilities and even travel and entertainment, depending on the circumstances. (Read: a dinner with business clients, not tickets to the movie theatre for you and your partner.)

Essentially, you’re allowed to deduct the cost of a variety of daily expenses — provided you can offer reasonable justification for doing so and have the receipts to back it up. It’s important to note here, however, that any expenses you seek to deduct from your tax bill must be tied to the running of your business in a manner that is acceptable to the CRA.

Do you have adequate health coverage?

While Canadians across the country typically enjoy universal provincial health care coverage, there are limitations to these programs. That’s why it’s a good idea to ensure your personal health care coverage is adequate for your needs, no matter what your employment situation is. Having said that, because self-employed Canadians in particular may not have a group or corporate health plan to fall back on, you might want to take extra care to ensure your coverage is adequate. When evaluating your own coverage, consider the cost of any prescription medications you may need, both now and in the future, as well as coverage for eligible dependents. While our provincial plans do cover a great deal, they often fail to cover prescription costs and quite a few paramedical services.

Dental care is another important consideration. While paying out of pocket for regular visits to the dentist might be bearable in the short term, emergency dental costs or more significant dental work can get expensive very quickly.

Health care coverage and funding varies from province to province. To learn more, click here.

Are you saving enough for retirement?

At this point in your life, retirement may still feel a ways off. You still have so much time, right? But unlike workers whose employment offers a pension, those who are self-employed may not have access to anything more than CPP or QPP and Old Age Security (OAS) payments following retirement. That means that you’ll essentially be responsible for funding the majority of your retirement on your own. Given that Canadians are living longer than ever, that could mean 20 years or more without income from your freelance or consulting work — assuming a retirement age of 65.

To help offset both near-term expenses you can predict now, as well as those that might come up in the future, you may want to start saving for retirement early on. In addition to contributing cash savings to a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA), you may also want to consider building a diversified investment portfolio that will grow over time. Even if the market experiences some ups and downs, a long-term investment horizon coupled with regular contributions has historically provided a substantial return on investment over time.

Learn more about self-directed investing here.

Do you have a rainy-day fund in case of emergency?

When your business is doing well, it can feel like the success will carry on indefinitely. Unfortunately, that’s not always the case. Many business owners experience both highs and lows at various stages in their careers. To help ensure you’re adequately prepared for the low times, it may be a good idea to set aside some extra funds for a “rainy-day” or emergency. That way, if things suddenly take a turn for the worse, you don’t have to worry as much about meeting your basic financial obligations, including rent or mortgage payments.

The question remains though: How much should you save? Well, ultimately, it depends. A common rule of thumb suggests saving anywhere from six to 12 months’ worth of expenses, but you may need more depending on your situation. If you can’t afford a large lump sum right now, you might consider setting aside smaller, regular amounts throughout the year. Even a little can go a long way over time — that’s because your savings can benefit from compound interest. Many Canadians store emergency funds (both as cash or investments) within a TFSA or high-interest savings account to ensure easy, immediate access should the need arise.

As a self-employed Canadian, you may already be aware of some of these extra considerations. If not, there’s no time like the present to dive in and get started. If you have any questions about self-employed tax obligations, visit the CRA website.

  1. Jason Kirby, “Canada’s self-employed are a vanishing breed”, Globe and Mail, April 6, 2023,

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