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November 09, 2021

Self employment carries hidden costs

More than 43,000 Canadian jobs disappeared last month, suggesting that most companies continue to wait for more signs of a sustained recovery before they begin hiring again.

The job losses would have been even worse, but that big drop was offset by a gain of 27,500 in the nebulous "self-employed" category.

If you’re one of those who've made the leap, keep in mind that your new job status brings with it a number of challenges, not the least of which is your tax situation. While writing off car and office expenses will certainly put money in your pocket, expect to be saddled with some unexpected costs.
For example, you’ll quickly end up paying twice as much in Canada Pension Plan premiums once you go out on your own.

CPP premiums are made up of equal amounts shared by the employer and employee. Which means now that you’re self employed, you’re responsible for both sides and have to remit the full amount to the CRA up front.

When you file your tax return, you’ll claim the employee's portion as a non-refundable credit, and the employer's portion as a deduction against income. The net result could be an additional tax bill of at least a couple of thousands dollars.

Then there's the cost of medical, dental and disability coverage. If you're leaving a decent package behind, it can cost you another $2,000 a year to match the level of protection you had while working.

The good news, of course, is that you don’t have to pay EI premiums any more since you’re no longer eligible to collect.

But this could change if the Harper government does decide to allow those that work for themselves to access maternity and parental money available under EI. In this case, expect to pay roughly half the normal premiums to obtain these type of benefits. 

Gordon Powers, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

James HaversJames Havers

James is the senior editor of MSN Money living in Toronto. He has worked for the Nikkei Shimbun (Tokyo),,, Canadian Business and other publications. Havers turned to journalism after teaching overseas.

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...