Self-Employed Contractor Tax Deductions: The Ontario Trades Guide

Nobody Is Withholding Anything

Most tradespeople who go out on their own came from a payroll job, where tax, CPP and EI came off before the money hit the account. Self-employed, none of that happens. Your invoices get paid in full, which feels like a raise for about ten months, and then the first tax bill arrives with a CPP charge attached that nobody mentioned.

The deductions on this page are real and worth claiming properly. But the reason a first-year framer or electrician gets into trouble is rarely a missed deduction. It is the CPP bill, the instalments they did not know to make, and the HST threshold they crossed in August without noticing. For the wider picture please see our construction CPA services.

The CPP Bill Nobody Warns You About

This is the single largest difference between working for a general and working for yourself, and it catches almost everyone. An employee pays 5.95% of pensionable earnings and the employer quietly matches it. There is no employer when you are self-employed, so you pay both halves.

A tradesperson billing $85,000 or more pays up to $9,292.90 in CPP for 2026, on top of income tax. Half of the base contribution is deductible against your income and the other half gives you a tax credit, so you get relief on both, but the cash still leaves your account. Please confirm the current figures at the January update.

Instalments: The Bill Arrives Before You Expect It

Because nobody is withholding, the CRA expects you to pay as you go through quarterly instalments once your tax owing passes the threshold. Miss them and interest accrues. The pattern is predictable: year one produces a large balance due in April, and year two then demands instalments on top of it, which is why the second year is often harder on cash than the first. Planning for it beats discovering it.

T5018: The CRA Already Knows What You Made

Where construction is a general contractor's principal business, they must file a T5018 reporting what they paid you for construction services. That means your revenue is already reported to the CRA before you file anything.

The most common review trigger for a self-employed tradesperson is reporting less revenue than the T5018 slips show. The slips are not always right, they can include HST, and they can cover a period that does not match your year end. Report your actual revenue, but expect the comparison, and keep records that explain any difference. Guessing at revenue when the CRA already has a number is a losing position.

What You Can Actually Deduct

The $30,000 HST Threshold

You generally must register for HST once your revenue passes $30,000 over four consecutive calendar quarters. Tradespeople cross it mid-year without noticing all the time, and registering late is a problem because the obligation to charge started when you crossed, not when you registered.

Registering early is often worth considering rather than avoiding. Input tax credits on your tools, truck, materials and fuel are real money, and a tradesperson equipping themselves in year one may recover a meaningful amount. Whether it helps depends on who your customers are: if you work for general contractors who are registered, charging HST costs them nothing. If you work directly for homeowners, it makes you 13% more expensive against an unregistered competitor. Please see our GST/HST registration service.

Are You Actually Self-Employed?

Worth asking honestly, because it is a question of fact and not answered by what your invoice says. The CRA weighs control over how the work is done, who owns the tools, your chance of profit and risk of loss, and the overall relationship. A tradesperson with several customers, their own tools and their own truck, who prices the work and carries the risk, is straightforwardly in business.

Someone working exclusively for one general, on the general's schedule, with the general's equipment, paid by the hour, is in a much weaker position. The exposure usually lands hardest on the general, who can owe unremitted source deductions with penalties and interest. But your deductions change too, because employees cannot claim what a self-employed person can. Please see our subcontractor versus employee guide.

When Incorporating Starts to Make Sense

Incorporating does not create new deductions. The same costs are deductible in the same way. What changes is the rate on profit you leave in the business, how you pay yourself, and the structure around it.

1. You are earning more than you need to live on. This is the actual trigger. Profit left in the corporation is taxed at the small business rate rather than your personal rate, which defers tax. If you draw everything out to live, that benefit does not exist.
2. Your income is stable enough to plan. Incorporation adds a corporate return, more bookkeeping and annual costs. Volatile income makes the arithmetic harder to justify.
3. You want limited liability. A genuine consideration in the trades, though it is a legal question rather than a tax one, and personal guarantees often undercut it in practice.
4. The numbers have been run. Not a rule of thumb from another trade, but your revenue, your draws and your position. See our incorporation services.

Records: Kept as You Go, or Not Kept at All

The CRA can ask you to support any expense, and generally you keep records for six years from the end of the tax year. For a tradesperson that means invoices out, receipts in, T5018 slips, your vehicle logbook, WSIB records and bank statements. A bank statement shows a payment, not what was bought, so it is not sufficient on its own. Photograph receipts as you get them. Reconstructing a year of fuel and supply purchases the week before filing produces a weaker claim and a larger bill.