What Canadian contractors need to know about taxes

A Canadian contractor running a business as a sole proprietor deals with four kinds of tax obligation. There's income tax on the business's profit, GST/HST on the work they invoice, instalment payments once the tax bill grows, and T5018 reporting if they pay subcontractors. Each has its own rules and its own deadlines, and they don't line up neatly.

Most of the stress around contractor taxes in Canada comes from that mismatch. The money arrives job by job, while the government asks for it on a calendar. This guide sets out what each obligation involves, gathers the deadlines into one calendar, and works through how much of a quarter's income is tax rather than revenue.

Short answer Contractors in Canada pay income tax on their business profit, file a return by June 15 if self-employed, and pay any balance by April 30. Once taxable revenue passes 30,000 dollars in a quarter or over four quarters, they must register for GST/HST, charge it at their province's rate and remit the difference between tax collected and tax paid on business purchases. Larger tax bills bring quarterly instalments, and construction businesses that pay subcontractors file T5018 slips. Keeping the tax portion of every payment separate is the habit that makes the rest manageable.

This guide covers sole proprietors working with the CRA. Incorporated contractors follow different deadlines, and contractors in Quebec have provincial obligations beyond what's described here, so treat this as a starting point to review with an accountant.

Income tax on the profit, not the revenue

The first obligation is the one most people expect. As a sole proprietor, your business income goes on your personal return, and you pay income tax on what's left after allowable business expenses.

That distinction shapes how you should think about every deposit. A payment for a job covers materials, fuel, tools, insurance and your time, and only the profit at the end of the year is taxed. Tracking expenses as you go is what keeps the taxable figure accurate, and it's far easier than rebuilding a year of receipts in April.

There's no employer withholding tax from your pay, either. The full amount for the year becomes due at once, which is why the instalment rules further down exist.

When do you have to register for GST/HST?

Income tax applies from your first dollar of profit. GST/HST works differently, because small businesses get a threshold before registration is required.

Under the CRA's small supplier rule, you stay a small supplier while your worldwide taxable revenue is 30,000 dollars or less in a single calendar quarter and over the last four consecutive quarters. Cross that line and you must register, generally within 29 days. A contractor billing a few kitchens or a steady run of service calls can reach that figure sooner than expected, so it's worth checking each quarter.

Registering below the threshold is allowed. Some contractors choose to, because a registrant can recover the GST/HST paid on business purchases, which matters when materials make up a large share of each job.

How GST/HST works on a contractor's invoices

Once registered, you charge GST/HST on your taxable work at the rate for the province where the work is supplied. Five provinces use a single HST, and the rest charge 5% GST, with some adding a separate provincial tax. Our GST/HST rates page lists the current rate for every province and territory.

What you send the government is your net tax. The CRA describes it as the GST/HST you collected or that became collectible in the period, minus the GST/HST you paid on business purchases for which you can claim input tax credits. That subtraction is why keeping supplier receipts matters as much as sending invoices.

Timing matters as well. Tax on an invoice can become owing when you issue it, before the customer pays, which we cover in more detail in our guide to asking customers for payment. A slow payer can leave you remitting HST you haven't yet received.

Contractor taxes in Canada through the year

With the four obligations laid out, the next question is when each one falls due. The table below brings the main dates together for a sole proprietor with a December 31 year-end, based on the CRA's business tax deadlines.

Date	What's due	Who
March 15	First instalment	If instalments apply
April 30	Income tax balance owing	Every sole proprietor
April 30	GST/HST payment	Annual filers
June 15	Income tax and benefit return	Every sole proprietor
June 15	Annual GST/HST return	Annual filers
June 15	Second instalment	If instalments apply
June 30	T5018 return	If you pay other trades
September 15	Third instalment	If instalments apply
December 15	Fourth instalment	If instalments apply

Two notes on reading it. Monthly and quarterly GST/HST filers don't use the April and June dates. They file and pay one month after each reporting period ends. And when any deadline falls on a weekend or a CRA-recognised public holiday, a return or payment received on the next business day is on time.

Notice that the payment dates come before the filing dates. An income tax balance is due April 30, even though the return itself isn't due until June 15, so it pays to estimate the figure early.

A worked example from one quarter in New Brunswick

The calendar tells you when money leaves. The more practical question is how much of each payment to put aside. Take an illustrative quarter for a sole proprietor registered for HST in New Brunswick, where the rate is 15%.

Item	Amount
Work invoiced before tax	$30,000
HST charged at 15%	$4,500
Total collected	$34,500
HST paid on materials	$1,200
Net tax to remit	$3,300

Of the $34,500 that reached the bank, $3,300 belongs to the government. The $1,200 comes back as input tax credits because it was paid on materials bought for the business, which is why the remittance is smaller than the tax charged.

The $30,000 is revenue, and income tax is worked out later on whatever profit remains after the quarter's expenses. A practical habit is to move the HST portion of each payment into a separate account the day it arrives. When a customer pays a round, tax-included figure, the HST inside it is the total multiplied by 15 and divided by 115.

Instalments once the tax bill grows

As profits rise, the CRA stops waiting for one payment in April. According to the CRA's page on required tax instalments, you may have to pay instalments if your net tax owing is more than $3,000 ($1,800 in Quebec) for the current year and in either of the two previous years.

Instalments are due March 15, June 15, September 15 and December 15. They spread the year's tax across the year, much as payroll deductions would for an employee. Late or short instalments can attract interest and penalties, so once you receive an instalment reminder, the four dates belong in your calendar alongside your jobs.

T5018 slips if you pay other trades

The last obligation applies to a narrower group, and it's the one contractors most often miss. Under the CRA's T5018 rules, you must report contract payments if more than 50% of your business income comes from construction and you paid a Canadian resident subcontractor more than $500 in the year, not including GST/HST.

The CRA's list of construction activities is broad. It includes drywalling, electrical work, painting and decorating, plumbing, roofing, tile work and finish carpentry, among others. The return is due six months after the end of the reporting period you choose, which is June 30 for a calendar year. Late slips carry penalties, so if you hire other trades regularly, log each payment against the job it belongs to as you make it.

Keeping the paperwork for six years

Every obligation above depends on the same thing, which is being able to show where the numbers came from. The CRA generally requires businesses to keep books and supporting documents for six years, as we cover in our guide to managing multiple jobs.

For a contractor, supporting documents mean invoices, supplier receipts, contracts, payment confirmations and anything that explains an unusual figure. Filed against the job they belong to, they answer a question in minutes. Scattered across email, a glovebox and a camera roll, the same question can take an afternoon.

How StrikeHoney keeps the tax side of each job in order

The pattern across all four obligations is the same. Tax is easiest when it's captured correctly on the day of each sale. That's the part we built StrikeHoney to handle.

• The right rate on every invoice. GST/HST is applied automatically by province from your tax settings, so nobody types a rate in by hand.
• A tax report when you need it. Pull the numbers for filing, for your accountant, or to check your own math before a deadline.
• Every payment counted. Cash, cheque and e-transfer payments can be marked paid by hand, so your totals match the bank.
• Paperwork on the job. Photos and documents attach to the job they belong to, rather than living in a camera roll.

Invoices run in their own INV- number series, separate from quotes, which keeps the sales side of your books easy to follow. All of it comes on a single plan at $24/mo CAD, or $19/mo CAD billed annually, with GST/HST handling included rather than sold as an extra. See how our contractor invoicing software handles the rest.

The bottom line

Contractor taxes in Canada come down to four obligations on a predictable calendar. They are income tax on profit, GST/HST once you pass the small supplier threshold, instalments as the bill grows, and T5018 slips if you pay other trades. The contractors who find tax season manageable are the ones who set aside the tax portion of every payment and keep each job's paperwork together as they go.

If you're holding a payment that already includes tax, our free reverse sales tax calculator shows the amount before tax and the GST, HST or PST inside it, by province.