Got a regular job and a side business? You are not alone. Many Canadians earn employment income while also freelancing, consulting, selling products online, renting property, or running a small business after hours.
Filing your taxes becomes more detailed when you have both employment income and self-employment income. Your employment income is usually reported on a T4 slip, with tax, CPP, and EI deducted by your employer. Your side-business income is different. You are responsible for reporting the income, claiming eligible expenses, tracking records, and paying any additional tax, CPP, GST/HST, or instalments that may apply.
Here is what you need to know when filing your taxes with employment income and a side business in Canada.
Report Both Your Employment Income and Business Income
If you have a job, your employer will usually issue a T4 slip showing your employment income and deductions. This income is reported on your personal income tax return.
If you also earn income from a side business, you must report that income as well. Business income is generally reported on Form T2125, Statement of Business or Professional Activities, as part of your T1 personal tax return. This applies whether the business is full-time or part-time.
You do not need to incorporate to have business income. If you earn income on your own as a freelancer, contractor, consultant, online seller, gig worker, or sole proprietor, you may have self-employment income that must be reported.
Do Not Confuse the GST/HST Threshold with Income Tax Reporting
One common mistake is thinking that a side business does not have to be reported if it earns less than $30,000. That is not correct.
The $30,000 threshold generally relates to whether most businesses must register for GST/HST, not whether the income is taxable. For most businesses, CRA says you are a small supplier if you do not exceed the $30,000 threshold over four consecutive calendar quarters. If you exceed the threshold, you may have to register for GST/HST and start charging, collecting, and remitting GST/HST.
Even if you are below the GST/HST registration threshold, you still need to report your side-business income for income tax purposes.
Claim Eligible Business Expenses
Having a side business means you may be able to deduct reasonable expenses incurred to earn business income. These deductions reduce your net business income, not necessarily your tax bill dollar-for-dollar.
Eligible expenses may include:
- advertising and marketing;
- business-use-of-home expenses;
- office supplies;
- professional fees;
- software and subscriptions;
- bank charges;
- delivery and shipping costs;
- vehicle expenses for business use;
- telephone and internet expenses;
- insurance;
- business travel; and
- equipment or capital assets, which may need to be claimed over time through capital cost allowance.
You must keep receipts, invoices, mileage logs, bank records, and other supporting documents. CRA can ask to see proof that the expenses were incurred, were reasonable, and were connected to earning business income.
Separate Personal and Business Records
Good bookkeeping is essential when you have a side business. Even if your business is small, you should track:
- gross sales or revenue;
- refunds or discounts;
- expenses;
- GST/HST collected and paid, if registered;
- accounts receivable and payable;
- business bank transactions;
- cash payments;
- e-transfer payments;
- platform or marketplace income; and
- business-use portions of mixed-use expenses.
Opening a separate business bank account can make tax filing easier and reduce the risk of missing income or claiming personal expenses by mistake.
Understand How Tax Brackets Work
Earning more income from a side business may move some of your income into a higher tax bracket. However, this does not mean all your income is taxed at the higher rate. Canada uses a marginal tax-rate system, which means different portions of your taxable income are taxed at different rates.
For 2026, the federal tax brackets are:
- 14% on the first $58,523 of taxable income;
- 20.5% on the portion over $58,523 up to $117,045;
- 26% on the portion over $117,045 up to $181,440;
- 29% on the portion over $181,440 up to $258,482; and
- 33% on taxable income over $258,482.
Provincial or territorial income tax also applies in addition to federal tax. Each province and territory sets its own income tax rates, and those rates apply on top of the federal tax.
Factor in Canada Pension Plan Contributions
If you are self-employed, you generally have to pay both the employee and employer portions of Canada Pension Plan contributions on your self-employment income, up to the annual limits.
For 2026, the first CPP earnings ceiling, also called the Year’s Maximum Pensionable Earnings, is $74,600. The basic exemption remains $3,500. The employee and employer CPP contribution rate is 5.95% each, and the maximum annual self-employed base CPP contribution is $8,460.90.
CPP2 may also apply to higher self-employment earnings. For 2026, CPP2 applies on pensionable earnings above $74,600 up to the additional maximum pensionable earnings of $85,000. The CPP2 rate is 4% each for employees and employers, or 8% for self-employed individuals, with a maximum self-employed CPP2 contribution of $832.
If you already contribute to CPP through your employment income, those contributions are taken into account when calculating any additional CPP owing on your self-employment income. Your tax return reconciles the total CPP contributions required.
Remember That EI Is Different for Self-Employed Income
Employees usually pay Employment Insurance premiums through payroll. Self-employed individuals generally do not pay regular EI premiums on self-employment income unless they voluntarily register for the EI special benefits program for self-employed people.
This is separate from CPP and should not be confused with your employer’s payroll deductions.
Watch for Tax Instalment Requirements
If your side business grows, you may not have enough tax withheld from your employment income to cover your total tax bill. CRA may require you to make tax instalment payments.
For 2026, you may have to pay tax instalments if your net tax owing is more than $3,000, or $1,800 for Quebec residents, for 2026 and in either 2025 or 2024. Instalments are generally due on March 15, June 15, September 15, and December 15.
This often affects people with self-employment income, rental income, investment income, capital gains, or other income where little or no tax is withheld at source.
Consider GST/HST Registration
If your side business makes taxable supplies in Canada, you may need to monitor your revenue for GST/HST purposes. For most businesses, if you exceed $30,000 in taxable supplies over four consecutive calendar quarters, you are no longer a small supplier and may have to register for GST/HST.
Once registered, you generally need to charge GST/HST on taxable supplies, file GST/HST returns, remit the net tax collected, and keep supporting records. You may also be able to claim input tax credits for GST/HST paid on eligible business expenses.
Some businesses register voluntarily before reaching the threshold, but this should be reviewed carefully with an accountant because it creates filing and remittance obligations.
Know Your Filing Deadline
If you or your spouse or common-law partner carried on a business in the year, your personal income tax return is generally due by June 15. However, any balance owing is still due by April 30 to avoid interest. In limited cases, such as where business expenditures are primarily the cost or capital cost of tax shelter investments, the regular April 30 filing deadline may still apply.
That means the filing deadline may be later, but the payment deadline is not. If you expect to owe tax, plan ahead so you are not surprised by interest charges.
Keep Records for CRA Review
CRA may ask for records to support your business income and expenses. Keep documents such as:
- sales invoices;
- receipts;
- bank and credit card statements;
- platform reports;
- contracts;
- mileage logs;
- home-office calculations;
- GST/HST records;
- payroll records, if applicable; and
- accounting reports.
Good records make tax filing easier and help protect you if CRA reviews your return.
Common Mistakes to Avoid
Common mistakes when filing taxes with employment income and a side business include:
- not reporting side-business income;
- assuming income under $30,000 does not have to be reported;
- mixing personal and business expenses;
- claiming expenses without receipts;
- forgetting CPP on self-employment income;
- missing GST/HST registration requirements;
- not setting money aside for tax;
- ignoring instalment reminders;
- claiming 100% of mixed-use expenses without support; and
- not tracking business-use-of-home or vehicle expenses properly.
Speak with a Professional
Filing your taxes with both employment income and side-business income adds complexity to your return. You need to report all income, claim only eligible expenses, keep proper records, consider CPP, monitor GST/HST obligations, and plan for instalments if your tax owing increases.
If you feel confident filing your own return, it can still be helpful to have an accountant review your business income, deductions, GST/HST status, and CPP exposure before you file.
E&E Professional Accountants has years of experience in assisting businesses with their accounting needs. We are founded and managed by an experienced corporate auditor and a former CRA tax auditor. Feel free to contact us for assistance with all your accounting and bookkeeping needs.