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Canada — 10 min
Ready to take control of your career and make a living on your own terms?
Then Canada is an ideal location to begin your self-employed journey.
That's not just because of the friendly people, breathtaking scenery, and (of course) world class maple syrup, either. The Great White North is a bona fide entrepreneurial hub that supports and empowers independent contractors, while its largest city, Toronto, is arguably the world’s top destination for remote work.
Before you get started, though, you’ll need to understand how to:
Register your business in Canada
Avoid misclassification as an employee
Create compliant contracts that protect you
Invoice and collect payments from around the world
In this guide, we’ll cover all these things. We’ll also help you navigate your tax obligations as a self-employed worker, and discuss some of the other risks and liabilities you should be aware of.
But first, it’s important to clarify how Canada defines independent contractors.
Independent contractors are workers who provide paid services to another party. However, they are classified differently to employees, and are not entitled to the same benefits.
See also: Why businesses hire contractors vs. international employees
To help determine if a worker is a contractor or an employee, the Canada Revenue Agency (CRA) applies multiple threshold tests, including:
Whether the worker is allowed to subcontract work
Who carries the exposure to financial risk
Who provides the tools and equipment for the job
Who sets the price and controls the work
The exclusivity of the arrangement
The level of integration within the company (i.e. does the worker have an internal company email address? Do they attend internal company meetings and events?)
When setting up as an independent contractor, it’s important to be correctly classified to avoid penalties and fines.
To work as an independent contractor in Canada, you’ll need to choose a legal structure for your business. Some of the most popular models include:
Sole proprietorship: A simple structure that is ideal for independent, individual contractors. You have full control of the enterprise, although there is no legal separation between you (the owner) and the business; you are personally responsible for all its debts and liabilities.
Partnership: A simple partnership agreement. Again, there is no legal separation between the individual and the business; you and your partners are personally responsible for any debts and liabilities.
Corporation: A formal, legal entity that is separate from you, the individual. All income and losses are attributed to the company as opposed to you personally. In Canada, you can incorporate your business through either the federal or provincial/territorial authorities.
There are pros and cons to each structure, but most independent contractors choose the sole proprietorship model, as it is fairly simple to set up and operate.
If you choose this structure, you’ll need to register your business with your local provincial/territorial government, as opposed to the federal government. Each province/territory has its own registration requirements, so it’s a good idea to consult with your local authority.
In some cases, you may also need a federal business number. If you are in British Columbia, Manitoba, Nova Scotia, Ontario, or Saskatchewan, you’ll automatically receive this number when you complete your business registration. Otherwise, you will need to acquire one through the CRA.
For more information on registering a sole proprietorship in Canada, visit the Canadian government website.
As an independent contractor, it’s down to you to handle your invoices and payment collection. Unfortunately, this means billing each client individually and collecting payment through their preferred payment method — which can be inefficient and time-consuming.
Some of the most common ways to collect payments include:
Digital transfer services like PayPal and Wise
These methods all have their own pros and cons. For instance, bank and digital transfers can be pretty quick, but often come with hefty service fees. And if you have clients in other countries besides Canada, the payment collection process can be even more complicated.
Alternatively, you can use a trusted solution like Remote. Our platform is a simple, secure, and reliable way to get paid quickly in Canadian dollars — and with no hidden fees. Learn more about how our platform can help.
As an independent contractor, you’re also responsible for calculating and paying your own taxes and social contributions. Like most countries, Canada has a progressive income tax rate that indicates how much you owe.
If you are a sole proprietor, you pay personal income tax on your business profits. Specifically, you must:
Report your business income on the T2125 form
Fill out Form 428 to calculate your provincial/territorial tax (if you are in Quebec, you must complete a separate provincial tax return)
Both of these forms are included in the general T1 personal income tax return.
If you generate business profits of over $3,500, you must also contribute to the Canada Pension Plan (CPP) (or Quebec Pension Plan (QPP), if you are based there). As a self-employed worker, you’ll be liable for the full contribution of 11.4% on your business profits, although the maximum annual contribution is capped at $7,508.90.
The Canadian tax year runs from January to December, and the filing deadline for self-employed workers is June 15. However, if you owe more than $3,000 in net taxes (or $1,800 in Quebec), you will need to pay quarterly, with the first installment due in March. You can learn more about paying your tax in installments on the CRA website.
On the plus side, you can claim tax deductions for multiple business expenses, including:
Office supplies and equipment
Business-related mileage and travel
Professional and legal fees
Maintenance and repairs
In Canada, VAT is known as the Goods and Services Tax and Harmonized Sales Tax (GST/HST). If you earn less than $30,000 over four consecutive business quarters, then the CRA considers you a “small supplier”, and you don’t need to charge GST/HST.
If this changes and you earn more than $30,000 across four quarters, you’ll need to register for — and start charging — GST/HST. The CRA has created a handy guide that clearly lays out if and when you need to pay GST/HST.
As a sole proprietor, you are personally liable for finance and tax debts, which means your private assets can be forcibly used to settle your business debts. Many independent contractors purchase liability insurance to minimize this risk.
It’s also important to cover yourself when drafting and signing agreements with clients. Our legal experts can provide you with fully compliant contract templates, for both Canadian and international clients.
As a sole proprietor, you don’t need to prepare public financial statements. However, you should still use a basic bookkeeping tool (or even an Excel spreadsheet) to record and track your transactions and expenses. This will also make it easier for you to fill out the T2125 form on your tax return.
It isn’t mandatory to open a separate business bank account, but it’s generally recommended as a way to simplify your business income and expense accounting.
As we’ve mentioned, contractors are classified differently to employees. The protections and benefits employees enjoy do not typically apply to contractors.
As a result, companies may deliberately misclassify you to circumvent their legal obligations, while at other times, it may happen accidentally. Whether it’s intentional or not, misclassification can result in penalties and fines for both you and your client.
As an independent contractor, you can work with your clients to ensure this doesn’t happen. Discuss your role and responsibilities with them, and review the working arrangement regularly. If you’re still not sure what you should be classified as, contact the CRA to request a ruling.
If your working relationship changes over time and you become more integrated into a client’s company, you can ask to be converted into an employee.
Open a dialogue with your client and carefully discuss the risks and benefits of moving to an employer-employee relationship. In particular, be clear about how it can benefit both parties — not just you.
You can even suggest the help of a third-party solution, such as Remote, to ease the transition. Our global employment services help both parties stay compliant by taking care of key HR functions (like payroll management and benefits administration) in line with Canadian law.
As you can see, there’s a lot to take on board when setting up as an independent contractor. Remote can help you with many of these challenges, allowing you to focus on growing your business and delivering to your clients. Here’s how:
Navigating all of your clients’ different invoicing, approvals, and payments systems can be complicated and time-consuming. And manual methods of invoicing and collecting payments can increase the risk of fees, errors, and delays.
Remote gives you access to a highly secure, streamlined dashboard that makes invoice management and international payments cost-effective and efficient. You can use our platform to get paid in Canadian dollars hassle-free, without any hidden fees.
When you draft agreements and contracts for your clients, you run the risk of non-compliance with local labor laws — especially when working with international clients. Remote offers localized contracts tailored to Canadian laws, ensuring that you stay compliant. Our legal experts can also provide guidance on complex issues, such as local classification and intellectual property protections.
With Remote, you no longer need to rely on spreadsheets and other manual tools to invoice for payments; we remove many of the inaccuracies and delays caused by archaic processes and manual management. Our platform lets you create invoices, submit them for approval, and subsequently get paid in your local currency without needing to switch to any other tool or software.
Tax management is notoriously complex work. Remote helps you quickly and efficiently deal with tax management by compiling data about your income based on your invoices and payments received.
Having the freedom and flexibility to work on your own terms is liberating. But your administrative responsibilities can distract from what you really want to be doing: helping your clients, delivering great work, and collecting invoices.
By using a stable, trusted platform like Remote, you can manage these obligations quickly and efficiently, allowing you to focus on your business goals. Specifically, we can help you:
Avoid intermediary fees and delays with international client payments
Draft compliant contracts for Canadian and foreign clients
Enhance your invoice management and avoid manual processes
Comply with local labor laws regarding work practices
Our platform makes it quick, simple, and seamless to get started as an independent contractor. Learn more about how our expertise can save you time and resources today.
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