As a rough guide, set aside 25 to 30 percent of your profit, not your revenue, for income tax and CPP. If you charge HST, that money is separate again. It was never yours to spend, so keep it parked and ready.
When you work for yourself, nobody takes tax off before the money hits your account. That is freeing right up until the bill arrives. The fix is simple: set a slice aside as you go, so tax time is a transfer, not a shock.
Why this trips people up
As an employee, tax, CPP, and EI come off every paycheque before you ever see it. Self-employed, the full amount lands in your account and feels like yours. It is not. A chunk belongs to the government, and the only question is whether you have it ready when they ask.
The rough number
For most self-employed clinicians, 25 to 30 percent of profit is a sensible amount to hold back. Profit means what is left after your expenses, not your total billings. If you bring in $120,000 but spend $30,000 running the practice, you are setting aside a share of the $90,000, not the $120,000.
That set-aside covers two things:
- Income tax, both the federal and the provincial part, which depends on where you live and how much you earn.
- CPP, where the self-employed pay both halves, so it is more than an employee pays on the same income.
The percentage climbs as your income climbs, because tax brackets do. Lower earners can sit nearer 20 percent, higher earners closer to a third. We give you a number based on your real situation so you are not guessing.
HST is a separate pot
If you are a registered massage therapist, the HST you charge clients is not income. You are holding it for the government, minus what you claim back on your own costs. Spend it during the year and you will feel it when the HST return is due. Keep it separate from day one. Physiotherapists are exempt, so this part does not apply to you.
Make it automatic
The practitioners who never stress about this do one simple thing: every time they get paid, they move a fixed percentage into a separate savings account and forget it is there. Our free tracker helps you see your profit as you go, so the percentage you set aside is based on real numbers, not a guess. You can see the full deduction lists for physiotherapists and massage therapists, since the more you deduct, the less you need to hold back.
Frequently asked
A good rule of thumb is 25 to 30 percent of your profit, which is your revenue minus expenses. Lower earners can sit nearer 20 percent and higher earners closer to a third. It covers income tax and both halves of CPP.
Profit, not revenue. You only owe tax on what is left after your business expenses, so base your set-aside on your profit. Setting aside a share of total billings would put away far more than you need.
No. If you are a registered massage therapist, the HST you charge is money you hold for the government, less what you claim back on your costs. Keep it separate and do not spend it. Physiotherapists are exempt and do not charge HST.
Once your tax owing passes a certain level, the CRA asks you to pay in quarterly instalments through the year instead of in one lump at filing. It is a schedule, not a penalty. We will let you know if it applies to you.
This article is general information for Canadian health practitioners, not advice for your specific situation. The right amount to set aside depends on your income, province, and deductions, so confirm with an accountant.