Freelancer Tax Glossary: Canada 2026
📅 Last updated: January 17, 2026 • ✅ Complete guide to Canadian tax terminology
Understanding Canadian tax terminology is essential for freelancers. This comprehensive glossary explains all the key terms you'll encounter when filing your taxes, calculating your obligations, and understanding CRA requirements.
CPP (Canada Pension Plan) Terms
CPP (Canada Pension Plan)
A mandatory retirement pension plan for all working Canadians. Self-employed individuals pay both the employer and employee portions, totaling 11.9% of eligible earnings in 2026.
For freelancers: You pay double what employees pay because you cover both portions yourself.
CPP2 (Second CPP Contribution)
An additional CPP contribution introduced in 2024. Self-employed individuals pay 8% on earnings between $74,600 and $85,000 (the YAMPE range).
Maximum CPP2: $832 in 2026 (on the $10,400 range between YMPE and YAMPE).
YMPE (Year's Maximum Pensionable Earnings)
The maximum amount of earnings subject to base CPP contributions. In 2026, this is $74,600. You pay CPP on earnings between $3,500 (basic exemption) and $74,600.
2026 YMPE: $74,600 (increased from $73,200 in 2025)
YAMPE (Year's Additional Maximum Pensionable Earnings)
The upper limit for CPP2 contributions. In 2026, this is $85,000. You pay CPP2 on earnings between $74,600 (YMPE) and $85,000 (YAMPE).
2026 YAMPE: $85,000 (increased from $81,800 in 2025)
CPP Basic Exemption
The first $3,500 of earnings is exempt from CPP contributions. You only pay CPP on earnings above this amount.
2026 exemption: $3,500 (unchanged from 2025)
Tax Calculation Terms
BPA (Basic Personal Amount)
A non-refundable tax credit that reduces your taxable income. Each province and the federal government has its own BPA. It's converted to a tax credit by multiplying by the lowest tax rate.
2026 Federal BPA: $16,452 (provides $2,303 tax credit at 14% rate)
Provincial BPAs vary: Alberta has the highest at $21,885, while most provinces are around $11,000-$13,000.
Marginal Tax Rate
The tax rate applied to your next dollar of income. In Canada's progressive tax system, different portions of your income are taxed at different rates.
Example: If you earn $80,000 in Ontario, your marginal rate is 36% (20.5% federal + 9.15% provincial on that bracket).
Effective Tax Rate
Your total tax divided by your total income, expressed as a percentage. This is lower than your marginal rate because lower portions of income are taxed at lower rates.
Example: On $80,000 income with $23,697 in tax, your effective rate is 29.6% ($23,697 ÷ $80,000).
Taxable Income
Your gross income minus business expenses and other deductions. This is the amount used to calculate your tax.
Formula: Gross Income - Business Expenses = Taxable Income
Net Income
Your income after all taxes and deductions. This is your take-home amount.
Formula: Gross Income - Total Tax = Net Income
GST/HST Terms
GST (Goods and Services Tax)
A 5% federal tax on most goods and services. Applies in provinces that don't have HST (Alberta, Saskatchewan, Manitoba, Northwest Territories, Nunavut, Yukon).
HST (Harmonized Sales Tax)
A combined federal and provincial tax that replaces separate GST and PST. Rates vary by province: 13% in Ontario, 15% in Nova Scotia, 15% in New Brunswick, etc.
GST/HST Registration Threshold
You must register for GST/HST if your revenue exceeds $30,000 in any 12-month period. This applies to revenue, not profit.
Important: You can register voluntarily even if under $30,000 to claim Input Tax Credits (ITCs).
Input Tax Credits (ITCs)
Credits you can claim for GST/HST paid on business expenses. This reduces the amount of GST/HST you need to remit to the CRA.
Example: You collect $1,300 in HST from clients but paid $200 in HST on business expenses. You remit $1,100 ($1,300 - $200).
Tax Forms and Documents
T2125 (Statement of Business Activities)
The form self-employed individuals use to report business income and expenses. This is attached to your T1 General tax return.
Required for: All freelancers and self-employed individuals reporting business income.
T4A (Statement of Pension, Retirement, Annuity, and Other Income)
A form clients may issue to you if they paid you more than $500. It reports income paid to contractors and freelancers.
Note: Not all clients issue T4As. You must report all income regardless of whether you receive a T4A.
T1 General (Income Tax and Benefit Return)
The main tax return form all Canadians must file annually. Self-employed individuals attach the T2125 to this form.
Payment and Filing Terms
Quarterly Installments
Required payments if you owe more than $3,000 in taxes. Due on March 15, June 15, September 15, and December 15.
Penalty: Interest charges if you miss or are late with installments.
Filing Deadline vs Payment Deadline
Filing Deadline: June 15th for self-employed (extended from April 30th)
Payment Deadline: April 30th for everyone (cannot be extended)
Critical: You can file late, but you must pay by April 30th to avoid interest charges.
Deduction Terms
Business Expense
A cost incurred to earn business income. Legitimate business expenses reduce your taxable income.
Criteria: Must be reasonable, necessary for your business, and not personal in nature.
Capital Cost Allowance (CCA)
The depreciation deduction for capital assets (equipment, vehicles, etc.). You can't deduct the full cost immediately; instead, you claim a percentage each year.
Example: A $2,000 laptop can be deducted at 55% in the first year ($1,100), with the remainder deducted in future years.
Home Office Deduction
A deduction for the portion of your home used exclusively for business. Can be calculated using the simplified method ($2/sq ft) or detailed method (percentage of home expenses).
Related Resources
Disclaimer: This glossary is for informational purposes only. Tax laws and terminology may change. Consult with a qualified tax professional for advice specific to your situation.