Why do I owe taxes on my self-employed income?

As a self-employed individual in Canada, you are responsible for paying taxes on your income because you are considered both the employer and the employee of your business. Here are several reasons why you owe taxes on your self-employed income:

• Income Tax Obligation : Like all Canadian residents, self-employed individuals are subject to income tax on their earnings. Income tax is calculated based on your net income, which is the amount remaining after deducting eligible business expenses from your gross income.

• Canada Pension Plan (CPP) Contributions : Self-employed individuals are required to contribute to the Canada Pension Plan (CPP) just like employees do. However, unlike employees who have their CPP contributions deducted automatically from their paychecks, self-employed individuals are responsible for both the employer and employee portions of CPP contributions. This contribution is meant to provide you with a source of retirement income.

• Employment Insurance (EI) Premiums : While self-employed individuals are not required to pay Employment Insurance (EI) premiums, they may choose to opt into the EI program to be eligible for special benefits, such as maternity or parental benefits. If you choose to opt in, you are responsible for paying EI premiums.

• Social Programs and Services : Taxes collected from self-employed individuals contribute to funding various social programs and services provided by the government, including healthcare, education, infrastructure, and social assistance programs.