01 · Return
T1 return & T2125
- T1 personal income tax return
- T2125 self-employment income and expense schedule
- GST/HST registration and first filing
- Quarterly instalment calculation
- CRA correspondence support
First-year contractor
Your first year contracting changes everything about how you are taxed
Moving from T4 employment to contract income means no employer withholding, new GST/HST obligations, deductions you have never tracked before, and a tax bill that arrives without warning if set-asides were not planned.
Common situations
Most first-year contractors arrive with the same set of unresolved questions. The sooner these are addressed, the fewer surprises at year-end.
- Left T4 employment and now receiving T4A income with no employer withholding
- Unsure whether to register for GST/HST and when the $30,000 threshold applies
- No tax set-asides in place and a potential balance owing at year-end
- Home office, equipment, and software costs that may be deductible but are not tracked
- Considering incorporation but unsure whether the timing makes sense yet
- Books were never set up because there was no business before this year
What Teplov CPA handles
Three areas that need to be in place before the first year closes: a clean return, organized books, and a set of planning decisions that avoid the most common first-year gaps.
02 · Books
Bookkeeping setup
- QuickBooks Online setup with contractor-specific chart of accounts
- Contract income tracking from T4As and direct invoices
- Home office, equipment, software, and professional cost categorization
- GST/HST input tax credit tracking from day one
- Monthly close process so year-end is not a scramble
03 · Planning
First-year planning
- GST/HST registration threshold review and timing
- Tax set-aside calculation based on expected net income
- Incorporation timing analysis: when it helps and when it adds complexity
- Deduction eligibility review for home office, equipment, and software
- Instalment schedule for the following year
The set-aside problem
T4 employment withholds tax on every paycheque. Contract income does not. The full gross amount deposits into your account, and nothing is remitted to CRA until you file or pay instalments.
For many first-year contractors, this creates a large and unexpected balance owing in April. The amount depends on total income, deductions, CPP, and provincial rates. Getting a reasonable set-aside number early in the year is one of the most practical things a CPA can do for a new contractor.
The preparation method is visible, not hidden behind vague process language
- 01 · README.md Public workflow repo The
it-contractors-skillsrepo shows the preparation method behind the practice: collect documents, organize income and expenses, preserve uncertainty, and generate a CPA handoff summary. - 02 · audience.md Technical-audience fit The workflow is designed for contractors who are comfortable with GitHub, VS Code, structured files, and AI tools, but still want professional boundaries before tax filing.
- 03 · boundaries.md CPA judgment stays central The workflows support preparation and issue spotting. They do not provide tax advice, verify completeness, or determine final filing positions.
Related guides
Detailed breakdowns of the decisions that come up in the first year of contracting.
- R · 01
GST/HST Registration for Canadian IT Contractors
The $30,000 threshold, voluntary registration, input tax credits, and retroactive liability risk for IT contractors.
→ - R · 02
Quarterly Tax Instalments for Canadian IT Contractors
When CRA requires instalment payments, the three calculation methods, due dates, and interest risk for IT contractors.
→ - R · 03
Home Office and Business Expenses for IT Contractors
How Canadian IT contractors should support home office, software, equipment, phone, internet, and vehicle deductions.
→ - R · 04
2025 Tax Document Checklist for IT Contractors and Tech Consultants
A complete list of documents IT contractors need to file their 2025 T1 return, T2125 schedule, and GST/HST return accurately.
→ - R · 05
Should I Incorporate as an IT Contractor?
The tax math, admin cost, PSB risk, and cash-flow factors that determine whether incorporation makes sense for IT contractors.
→
Common questions
Q.01 Do I need to register for GST/HST in my first year?
Once your worldwide taxable revenue exceeds $30,000 in a single calendar quarter or over four rolling quarters, registration is required. You can also register voluntarily before that threshold to claim input tax credits on business expenses. The timing decision depends on your revenue trajectory and client mix.
Q.02 How much should I set aside for taxes?
There is no single number that applies to everyone, but a first-year contractor with no prior T4 income often needs to set aside 25 to 35 percent of net contract income. The right amount depends on your total income, province of residence, eligible deductions, and whether CPP contributions apply.
Q.03 Should I incorporate in my first year?
Not always. Incorporation makes sense when contract income is high enough to leave meaningful retained earnings in the corporation after paying yourself. In the first year, the complexity often outweighs the benefit. The decision is worth reviewing once income is stable and the deduction picture is clearer.
Q.04 What can I deduct as a first-year contractor?
Common deductions for IT contractors include home office costs calculated on the T2125, a portion of phone and internet, software subscriptions and SaaS tools, computer equipment, professional development, and accounting fees. Eligibility depends on how each expense connects to earning income.
Starting out
Starting out and want to get it right?
Describe your contracting situation, current income structure, and what you are most uncertain about. Teplov CPA responds within one business day.
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