Tax Saving Strategies for Consultants in Canada: Maximizing Your Deductions

Author: Maryam Ajorloo, CPA

Editor: Behdad Karimi, CPA

As a consultant in Canada, managing your taxes efficiently can make a significant difference in your overall earnings. Consultants have the advantage of numerous tax deductions and credits that can help lower their taxable income. However, keeping track of expenses, deductions, and compliance can be overwhelming.

Understanding Tax Obligations as a Consultant

Before diving into tax-saving strategies, it’s important for consultants to understand their tax obligations. Unlike salaried employees who have income tax deducted at source, consultants are responsible for:

• Reporting all income from clients and contracts.

• Paying income tax and self-employment taxes (CPP contributions).

• Charging and remitting sales tax (GST/HST) if required.

• Keeping thorough records for tax compliance and potential audits.

  
  

Having a clear grasp of these responsibilities ensures consultants remain compliant while optimizing their tax strategy.

Key Tax-Saving Strategies for Consultants

1. Claiming Business Expenses: Consultants can deduct a wide range of business expenses, including home office expenses, vehicle related expenses, meals and entertainment, marketing/advertising, accounting and legal fees. Keeping detailed records and proper categorization is essential to maximize these deductions.

   
   

2. Incorporation Benefits: Many consultants opt to incorporate their business to take advantage of lower corporate tax rates and income-splitting opportunities. This strategy can provide significant long-term tax benefits. A private Canadian corporations are eligible for lower tax rates. The typical tax rates for small corporations in Canada ranges between 12%-20%.

3. Contributing to Retirement Plans: Setting up an RRSP or TFSA allows consultants to save for retirement while reducing taxable income. Contributions to these accounts grow tax-free and can be withdrawn strategically in the future.

   
   

4. GST/HST Tax Credits and Input Tax Credits: Registering for a GST/HST number allows consultants to collect and remit sales tax while also claiming input tax credits on business expenses.

   
   

At What Income Level a Consultant Should Incorporate

Deciding when to incorporate your consulting business depends on several factors, including net income, growth plans, and personal financial needs. While there’s no universal answer, considering key aspects can help guide your decision.

General Rule of Thumb

Incorporation usually starts to make financial sense when your net income (after expenses) is around $80,000–$100,000+ per year and you don’t need to withdraw all of it for personal living expenses.

At that point, incorporation can bring significant tax advantages and limited liability protection.Why Income Level Matters

Why Income Level Matters

Situation	Sole Proprietorship	Corporation
Income under ~$80,000	Simpler, lower costs, taxed at your personal rate. Incorporation costs (legal + annual filings + accounting) may outweigh benefits.	Usually not worth it yet unless you need liability protection or plan to raise capital.
Income $80,000–$150,000	You’re likely moving into higher personal tax brackets (30%–40%).	Incorporation allows income splitting, paying dividends, and deferring tax by leaving profits in the corporation (small business tax rate ~12–15%).
Income $150,000+	Personal tax rate can exceed 45%.	Major tax deferral opportunities if you don’t need all income personally. Can invest retained earnings inside the corporation.

Tax Advantages of Incorporating

• Lower corporate tax rate: Small businesses in most provinces pay around 12–15%, vs. personal rates up to 50%.

• Tax deferral: You only pay personal tax when you withdraw the money.

• Income splitting: Potential to pay family members (if they work for you).

• Access to lifetime capital gains exemption (LCGE): If you ever sell your incorporated business, you may shelter up to $1M+ in gains from tax.

Keep in Mind

• Incorporation comes with extra costs: setup ($500–$1,000+), annual filings, separate corporate bank account, bookkeeping, and corporate tax returns.

• It’s less flexible for withdrawing cash — money in the corporation isn’t “yours” personally.

• For low-income years or part-time businesses, a sole proprietorship is simpler and cheaper.

ReInvestWealth Tip

If you:

• Earn under $80K/year, and spend most of what you earn → stay sole proprietor for now.

• Earn $100K+, and can leave some profit in the business → consider incorporating.

• Want liability protection (e.g., consulting contracts, creative agency, etc.) → incorporation may make sense earlier.

How ReInvestWealth Helps Consultants Save on Taxes

As a consultant, you're a business owner, and effective record-keeping is key to maximizing your tax deductions. Here are some tips for a smoother tax season:

• Expense & Income Tracking: AI bookkeeper automatically tracks and categorizes business expenses to ensure you don’t miss out on deductions. By reviewing your transactions, you ensure accurate record, improve cash flow management and facilities tax preparation.

  
  

• GST/HST Tracking: ReInvestWealth helps you manage tax filings and claim input tax credits efficiently. As a consultant you can automatically file your annual sales tax returns at no cost. ReInvestWealth’s premium accounting software, provides unlimited sales tax filings across Canada. ReInvestWealth GST/HST filing feature enables businesses to effortlessly e-file their Goods and Services Tax (GST), Harmonized Sales Tax (HST), Quebec Sales Tax (QST), and Provincial Sales Tax (PST) with unmatched convenience and efficiency.

  
  

• Financial Statements: ReInvestWealth generates real-time financial statements to help plan for tax season. Financial statements are more than just for preparing yearly tax filings, they are a key to the success of any business. If you have a solid understanding of how to analyze financial statements, then you have a clear picture of how well your business is doing, what resources are available, and where they should be allocated. 

  
  

• Compliance and Audit Support: ReInvestWealth helps you to keep your tax records accurate and compliant with CRA regulations. Bookkeeping is the core of your finances and ReInvestWealth is your bookkeeping tool to manage your finances and have visibility over your income and expenses. The tax audit process involves the Canada Revenue Agency (CRA) reviewing a business’s tax returns to verify the accuracy of reported income and deductions. This ensures that businesses are complying with tax regulations and paying the correct amount of tax.

Conclusion

Tax planning is crucial for Canadian consultants looking to optimize their earnings and reduce tax liabilities. By leveraging smart tax-saving strategies and using ReInvestWealth’s AI-powered accounting software, consultants can streamline their finances, stay compliant, and maximize deductions with ease. Don’t let tax season be a burden, empower yourself with the right tools and strategies to keep more of your hard-earned money.

Frequently Asked Questions

1. Do I need to register for a GST/HST number? If your business earns over $30,000 in a 12-month period, you must register for GST/HST. However, voluntary registration can also have benefits, such as claiming input tax credits.

   
   

2. How do I determine which business expenses are deductible? Any expense that is necessary for running your business, such as home office expenses, vehicle related expenses, meals and entertainment, marketing and advertising and accounting and legal fees may be deducted.

   
   

3. Can I deduct home office expenses? Yes, if you use a portion of your home exclusively for business, you can claim a percentage of rent, mortgage interest, utilities, and property taxes.

   
   

4. What vehicle expenses can I claim as a consultant? If you use your vehicle for business, you can deduct fuel, insurance, maintenance, and lease expense and interest on loan, based on the percentage of business use.

   
   

5. Can I write off professional development courses and certifications? Yes, courses, certifications, and training that enhance your professional skills and are directly related to your business are deductible.

   
   

6. How should I pay myself if I incorporate? You can pay yourself through a salary, dividends, or a combination of both. Each method has tax implications, so consulting with an accountant can help determine the best approach.

   
   

7. Do I need to make quarterly tax instalments? f you owe more than $3,000 in taxes in a year, the CRA may require you to make quarterly instalment payments.

   
   

8. How do I track and remit GST/HST? You must collect GST/HST on applicable sales and remit it to the CRA. ReInvestWealth automates GST/HST tracking and e-filings, ensuring compliance.

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Disclaimer

The content of this blog post is for informational purposes only and does not constitute accounting, tax, business, or legal advice. While ReInvestWealth offers professional accounting and tax advice through paid consultations with a CPA, the information provided here is general in nature and may not be applicable to your specific circumstances.