The Contractor's Guide to Not Getting Screwed by Taxes in Alberta
When Tax Time Feels Like Getting Hit by a Freight Train
Picture this: You've had a solid year. The work's been steady, the cheques have been coming in, and you're finally feeling like this whole business thing is working out. Then April rolls around, and your accountant drops a bomb: you owe the CRA $20,000. Or maybe you have great planning in place so you don’t want to pass out when you get that giant bill, but you do feel like someone is robbing your bank account every month.
If you're like most contractors in Alberta, you've probably been there. That gut-punch moment when you realize you've been working your ass off all year, but still can’t seem to catch up with the tax man.
Here's the thing: taxes don't have to feel like an attack on your bank account. With some simple planning and a few smart moves, you can handle taxes without the stress and groans (and definitely without emptying your savings account every April).
The best part? Once you have the right system in place, managing taxes becomes as routine as any other aspect of running your business. Let's get you set up for success.
Part One of the System: Start Treating Taxes Like a Bill Payment
Why Contractors Get Hit Harder Than Most
Let's be honest—the tax system wasn't designed with contractors in mind. When you're an employee, taxes get taken off your paycheque automatically. You never see that money, so you never miss it. But when you're self-employed, every dollar that comes in feels like yours to spend.
The problem is that roughly 25-30% of what you earn belongs to the government. That means if you brought in $80,000 last year, about $20,000-24,000 of that was never really yours to begin with. But if you spent it on truck payments, equipment, or just living expenses, you're going to feel that pain come tax time. And let’s be honest… those immediate expenses often keep contractors saying, “I’ll make it up next month.”
Alberta contractors also deal with the cyclical nature of our province's economy, which means income can fluctuate more than contractors in other regions. That's why having a solid tax strategy becomes even more important here.
It’s not all bad news, though. Keep in mind that living and working in Alberta gives you some special tax perks, including no PST or HST, plus a super low provincial small business tax rate of 11% on the first $500,000 of active business income.
The Simple System That Saves Your Bacon
Here's what successful contractors do differently: they treat taxes like any other business expense. Just like you budget for fuel, insurance, and equipment maintenance, you need to budget for taxes.
The 30% Rule: Every time money comes into your business, immediately set aside 30% for taxes. Not 30% of your profit—30% of every dollar that comes in. Yes, even before you pay for materials or subcontractors.
Why 30%? Because it covers:
Federal income tax (varies by income level)
CPP contributions (5.95% on earnings up to $68,500)
GST (5% that you collect but don't keep)
A buffer for any surprises
Where to Put It: Open a separate savings account called "Tax Money" or "CRA Fund" or whatever keeps you from touching it. Every payment you receive, transfer 30% immediately. Make it automatic if you can. There’s a reason we love helping clients implement the Profit First system—allocating money before you have a chance to spend it is really the only way to catch up (and get ahead) of expenses.
The Quarterly Check-In System
Instead of dealing with taxes once a year, successful contractors check in quarterly. Here's what that looks like:
Every Three Months:
Review how much you've set aside for taxes
Calculate roughly what you'll owe based on year-to-date income
Adjust your savings rate if needed
Make any necessary quarterly tax payments if you're incorporated
This prevents the annual shock and keeps you in control of your finances year-round.
Part Two of the System: Keep More Money in Your Accounts
Deductions That Actually Matter for Contractors
Most contractors in Alberta aren’t claiming everything they could be claiming. The tax code is full of deductions specifically for you, but let's focus on the big ones that actually move the needle:
Vehicle Expenses: This is usually your biggest deduction. You can claim the business portion of vehicle costs including fuel, maintenance, insurance, and depreciation. After you keep a detailed logbook for one year to establish a base year, you can keep a logbook for 90 days to establish your business-use percentage on an annual basis. The Canada Revenue Agency has specific guidelines on what qualifies.
Tools and Equipment: Most tools under $500 can be deducted immediately. Larger equipment needs to be appropriately depreciated over time, but you can often claim 50% in the first year through the Accelerated Capital Cost Allowance.
Home Office: If you do administrative work from home, you can claim a portion of your housing costs. Even 10% of your utilities, property taxes, and mortgage interest can add up over the course of a year.
Safety Equipment and Clothing: Work boots, hard hats, safety vests—all deductible.
If you’re not sure about whether or not something counts as a deduction, it’s usually fairly easy to look it up (and even easier to have your accountant looking things over so you don’t have to!)
Your Action Plan for Next Year
Here's what you need to do right now to set yourself up for success next year:
Open that separate tax account today and start putting 30% of every payment into it
Set up a simple system to track your business expenses (even a shoebox is better than nothing)
Start keeping a vehicle log if you haven't already
Schedule quarterly check-ins with yourself or your accountant
Which leads us to the next question you need to ask: do you need professional help with your books?
Look, you're good at what you do, but unless you're a contractor who also happens to be an accountant and bookkeeper, there's real value in getting professional help. Consider working with someone when:
Your annual revenue hits $50,000 or more
You're thinking about incorporating
You have employees or subcontractors
You're dealing with cross-province work
A good accountant who understands contractors will save you more money than they cost, and they'll handle the paperwork so you can focus on the work that actually makes you money. If you're looking for straightforward accounting services that speak your language, we're here to help.
Keep More of What You Earn
With some simple planning and the right system, you can keep more of what you earn and sleep better knowing tax season won't catch you off guard.
One thing I know after many years of working with contractors is this: the ones who thrive in Alberta aren't necessarily the ones who make the most money. They're the ones who keep the most money. And keeping more starts with a simple plan for handling taxes like the predictable business expense they are.
Ready to set up a system that keeps more money in your pocket and takes the stress out of tax season?
Book a Profit Clarity Call and let's talk about building a financial system that actually works for contractors. No jargon, no complicated spreadsheets—just straight talk about keeping your hard-earned money where it belongs.