Tradespeople in Canada — electricians, plumbers, carpenters, HVAC technicians, welders, painters, and other skilled tradespeople — face distinct tax situations depending on whether they work as employees or self-employed contractors. Many tradespeople work both ways at different times in their careers. This guide covers the tax rules, deductions, and strategies specifically relevant to Canadian tradespeople in 2025.
Many tradespeople move between employment and contract work throughout their careers, and some do both simultaneously. The distinction matters significantly for taxes:
Employee tradespeople: Receive a T4, have tax and CPP/EI withheld automatically, may claim limited employment expenses with a signed T2200 from their employer, and can access regular EI if laid off.
Self-employed tradespeople: Report income on T2125, pay self-employed CPP (11.9% combined rate), must register for HST/GST after $30,000 in revenue, can claim all legitimate business expenses, and cannot access regular EI (only special benefits if registered).
If you're uncertain whether you're an employee or contractor, the CRA looks at factors like: do you provide your own tools? Do you work for multiple clients? Do you control your own hours and methods? Do you risk profit or loss? More "yes" answers point toward contractor status.
Employed tradespeople who purchase tools required by their employer as a condition of employment can claim a special deduction on Line 22900 of their T1. In 2025, the maximum deduction for employed tradespeople is $500. You must have a signed T2200 from your employer certifying that you were required to purchase and provide tools, and your tool expenses must exceed the threshold of $1,356 (the "eligible tool adjustment").
Apprentice mechanics: Registered apprentices in the automotive trades can claim a more generous deduction — up to $500 for their first apprenticeship year and an escalating amount thereafter, based on their tool purchases minus the basic amount.
If you're a self-employed tradesperson or contractor, you can deduct all tools, equipment, materials, and operating expenses as business expenses on your T2125. This is far more generous than the employee deduction:
Transportation is a major expense for most tradespeople — driving to job sites, hauling tools and materials, attending supplier warehouses. Keep a detailed mileage log showing date, destination, kilometres, and business purpose for every business trip. Do not count commuting from home to your regular place of business — that's personal mileage.
For self-employed tradespeople with a dedicated work truck or van, the business-use percentage is often very high (80-100%). Deductible vehicle costs include fuel, insurance, maintenance, registration, financing interest (up to $300/month), and CCA on the vehicle. Trucks and vans over 3,000 kg are not subject to the Class 10.1 cost limitation, providing more CCA room for heavy work vehicles.
When you purchase materials for a client job and charge them back, those material costs are a business expense that offsets your revenue. Keep all receipts. Payments to subcontractors for labour are also deductible. If you pay any subcontractor more than $500 in a calendar year, you're required to issue a T4A slip by the last day of February the following year, and file a T4A Summary with the CRA.
Self-employed tradespeople must register for GST/HST once their revenues exceed $30,000 in any 12-month period. Construction services are taxable supplies — you charge HST (or GST) on your labour invoices to clients. The applicable rate depends on the province: 13% HST in Ontario, 5% GST in Alberta, 15% HST in Atlantic Canada, etc.
New home construction is subject to the New Housing Rebate system, which affects how you handle HST on new builds. If you're a builder (contractor who owns the property being built), the rules differ from a subcontractor providing labour to a general contractor. Get advice on your specific situation if you're involved in new construction.
Tradespeople who use part of their home for business purposes — storing tools, managing paperwork, scheduling jobs, storing materials — can claim a portion of home expenses as a business deduction. The space should be used regularly for business. The calculation is based on the percentage of your home used for business purposes.
If you're an employer who hires registered apprentices in designated Red Seal trades, you may be eligible for the Apprenticeship Job Creation Tax Credit (AJTC). The federal credit is 10% of eligible wages paid to apprentices in the first two years of their apprenticeship, up to $2,000 per apprentice per year. Provincial credits may also apply.
Self-employed tradespeople pay the full 11.9% CPP rate. While CPP contributions are not optional, the CPP benefit you'll receive in retirement is based on your contribution history. Many tradespeople retire earlier than average due to the physical demands of their work — maximizing RRSP contributions throughout your working years is especially important to have sufficient retirement income beyond CPP and OAS.
When you're self-employed, every fee matters. KOHO offers a free account with no monthly fees and no minimum balance. Use code 45ET55JSYA to get a bonus.
Open KOHO Free — No Fees — Code 45ET55JSYA