TAX TIPS FOR STARTING A BUSINESS

Whether you're diving into your first solo venture, testing out a side hustle, or going all in with a full-scale corporation, one thing is certain: the tax rules still apply and the CRA is watching from day one. Taxes. might feel like just another box to check, but here’s the truth most new business owners learn the hard way:
Taxes can either become one of your best tools for growth or your most expensive blind spot. Many  entrepreneurs focus on branding, websites, or sales (and rightfully so), but overlook the most important thing that keeps them in business long-term staying tax-compliant and financially structured.

Wait too long, and you risk late filing penalties, missed deductions, and unwanted attention from the CRA especially if your records aren’t audit-ready. But if you get it right from the start, you’ll not only stay compliant, you’ll legally pay less tax, appear more credible to lenders and investors, and gain the peace of mind that your financial foundation is solid.

The CRA doesn’t give “rookie passes” even if it’s your first year in business. That’s why setting up your systems, understanding your deductions, and registering properly before the money starts rolling in can save you thousands in penalties and lost tax opportunities.

So how do you do that?  

Here’s a complete rundown of practical, CRA-approved tax tips every Canadian entrepreneur should know when starting a business.

1.Choose the Right Business Structure From the Start  

Your business structure is more than a formality it sets the tone for your taxes, legal risk, and long-term growth. Choosing the right one upfront helps you avoid painful restructuring later and ensures you're taking advantage of the best tax strategies available for your situation.

◎ Sole Proprietorship  

This is the simplest and most common structure for new entrepreneurs. You and your business are legally the same, which makes setup easy and affordable. However, the downside is that your profits are taxed as personal income, which could bump you into a higher tax bracket as your earnings grow. You're also personally liable for any business debts or legal issues.

Best for: Low-risk businesses, side hustles, or first-time entrepreneurs testing the waters.

◎  Corporation (Incorporated Business)  

Incorporating creates a separate legal entity, which means your business has its own identity, bank account, and tax obligations. You pay corporate tax on profits (around 12.2% in Ontario on the first $500,000 if you qualify for the small business deduction) often much lower than personal tax rates.
You can also reinvest earnings, pay yourself a mix of salary and dividends, and build RRSP contribution room with salary. Plus, you gain limited liability protection your personal assets are generally safe if the business faces legal or financial trouble.

Best for: Businesses earning $60,000+ in profit annually, or those planning to scale and reinvest.

◎ Partnership  

If you're starting a business with someone else, a partnership may make sense. Each partner shares in the profits and losses, and each files their share of income on their personal tax return. You'll want a solid partnership agreement in place to outline roles, responsibilities, and how income is divided. Liability can be an issue, though unless it's a limited liability partnership (LLP), all partners are generally on the hook for debts and obligations.

Best for: Joint ventures where co-founders want a shared but flexible structure without full incorporation.

💡 Tip:   If you're aiming to earn more than $60,000 in profit or plan to leave money in the business, incorporation can offer major tax savings and long-term flexibility. It also signals credibility to banks, clients, and investors especially if you're playing the long game.

 2. Register for a Business Number (BN) and the Right Accounts  

Once you’re officially in business whether you're selling a service, physical products, or digital goods the next step is to register for a Business Number (BN) with the Canada Revenue Agency (CRA). Think of your BN as your business's SIN number it's a unique 9-digit ID that connects all your CRA accounts under one profile.

But here’s the key: the BN alone isn’t enough. Depending on what your business does and how it operates, you’ll need to add the correct program accounts underneath it.

Here are the most common CRA program accounts you might need:  

➤ GST/HST Account  

You must register if your business earns $30,000 or more in gross revenue over a 12-month period. But even before you hit that threshold, registering voluntarily allows you to:

• Charge GST/HST to clients (adds credibility in B2B relationships)
• Claim Input Tax Credits (ITCs) to recover the GST/HST you’ve paid on business expenses like software, office supplies, and contractors

Bottom line: If you’re spending more on setup than you're earning in the beginning, registering early could put real money back in your pocket.

➤ Payroll Account  

If you plan on hiring employees even just one you'll need a CRA payroll account. This allows you to:

• Withhold and remit source deductions (like CPP, EI, and income tax)
• File T4 slips and summary forms at year-end
• Stay compliant with payroll remittance deadlines

Pro tip: If you're incorporated and plan to pay yourself a salary, you’ll also need this account even if you're the only employee.

➤ Import/Export Account  

Planning to buy or sell goods across the border? You'll need an Import/Export Program Account tied to your BN. This is required by the CBSA (Canada Border Services Agency) and is often requested by customs brokers before processing shipments.

This applies to:

• E-commerce businesses sourcing goods from abroad
• Retailers or wholesalers shipping internationally
• Anyone drop shipping or working with fulfillment centers like Amazon FBA

Tip:  Even if you're not quite at the $30,000 mark yet, voluntarily registering for GST/HST is often a smart move. It helps you recover taxes on startup costs (which tend to be high) and instantly positions you as a serious business in the eyes of clients — especially those who are GST/HST-registered themselves.

Bonus Tip: The registration process can be done online through CRA’s Business Registration portal or through your province’s business registry (like Ontario Business Registry). If you’re unsure what to register for, we can help assess your needs and get you set up correctly from the start.

 3. Know What You Can Deduct  

One of the biggest tax advantages of running a business in Canada is the ability to deduct legitimate business expenses from your income which lowers the amount of tax you owe. But here’s the catch: CRA expects you to be honest, organized, and ready to show proof. If it helps you earn income, and it’s reasonable for your type of business, there’s a good chance it’s deductible.

Here are some of the most common and CRA-approved business write-offs you can claim

Startup Costs  

Yes, you can deduct the cost of launching your business! This includes:

• Website development
• Logo and branding services
• Business cards, brochures, and printing
• Legal and incorporation fees
• Accounting or consulting costs

Pro tip: Even expenses incurred before your official launch date can be deducted just keep those receipts!

 Home Office Expenses  

If you run your business from home, you can deduct a portion of your home expenses based on how much of your space is used for work. This includes:

• Rent or mortgage interest
• Utilities and property taxes
• Home insurance
• Maintenance and cleaning costs

The CRA usually expects you to calculate the percentage based on square footage (e.g. 100 sq ft office in a 1000 sq ft home = 10%).

  Phone, Internet, and Utilities  

You can deduct the business-use portion of your:

• Internet bill
• Cell phone plan
• Business software subscriptions (like Zoom, QuickBooks, Canva, etc.)

Remember: If you use your phone 70% for business, you can only deduct 70% of the cost. Don’t just write off the full bill unless you have a business-only line.

 Marketing and Advertising  

Investing in visibility? It’s tax deductible. This includes:

• Social media ads (Facebook, Google, Instagram)
• Business photos and video shoots
• Promotional items and swag
• Sponsored content or influencer partnerships

 Meals, Travel, and Vehicle Expenses  

• Meals: 50% deductible if it's for business (e.g. client lunch, networking event)
• Travel: Flights, hotels, taxis, and conference fees are deductible if the trip has a clear business purpose.
• Vehicle: You can deduct mileage or actual expenses (gas, insurance, lease, maintenance) if the car is used for business.

CRA expects a logbook or mileage tracker don't estimate. Apps like MileIQ or QuickBooks can automate this.

 Red Flags to Avoid  

The CRA doesn’t mess around when it comes to personal vs. business spending. Here’s what to steer clear of:

• Claiming personal vacations as business trips
• Writing off 100% of meals or cell phone bills without proof
• Estimating your mileage without a log
• Submitting handwritten receipts or vague credit card statements

These are audit triggers and when CRA audits, they want specifics. Always back up deductions with receipts, invoices, and records.

4. Track EVERYTHING from Day One  

This is where most new business owners slip up. They wait until tax season to dig through glove boxes, inboxes, and bank statements trying to piece together a year’s worth of spending in one weekend. Sound familiar? Unfortunately, that approach can cost you hundreds (or even thousands) in missed deductions, messy records, and avoidable CRA penalties.

Here’s the golden rule: If you want to claim it, you need to track it.

• Use Cloud Accounting Software  

Start using tools like QuickBooks Online, Xero, or Wave from Day 1. These platforms let you:

• Connect your bank and credit card accounts
• Categorize transactions automatically
• Generate profit & loss statements for tax time
• Track sales taxes (HST/GST) accurately

Even if you’re just starting out, this software saves you hours of manual work and gives you a clearer picture of your finances every month.

• Store Digital Receipts — Paper Isn’t Required  

Gone are the days of shoe-boxes stuffed with crumpled receipts. The CRA fully accepts digital copies as long as they’re legible and easily accessible if requested.

Use apps like:

• Hubdoc
• Dext (formerly Receipt Bank)
• QuickBooks mobile app

These tools let you snap, upload, and organize receipts in real time. No more scrambling to find a receipt from that supplier lunch eight months ago.

• Track Business Mileage With a Logbook  

Using your personal or company vehicle for business? You can’t just estimate your mileage the CRA wants proof. That means:

• Recording each trip (date, destination, purpose, and distance)
• Tracking total km driven in the year vs. business km
• Separate Business and Personal Bank Accounts  

This is a game changer. Having a dedicated business chequing account and credit card makes it:

• Easier to track income and expenses
• Cleaner for bookkeeping and reconciliation
• Stronger in case of a CRA review or audit

It also makes you look more credible to lenders, clients, and investors.

Tip: Don’t Wait — Set Up Monthly Bookkeeping  

Trying to untangle 12 months of mixed-up receipts and transactions during tax season is stressful and often inaccurate. Instead, set a monthly routine or better yet, hire a bookkeeper early in the game.

Why it matters:

• Catches errors before they snowball
• Flags cash flow issues early
• Keeps you compliant with HST, payroll, and installment deadlines
• Makes your year-end corporate tax filing smooth and stress-free

Remember: Good record keeping isn’t just about staying out of CRA trouble it’s about running a smarter, more profitable business.

5. Understand Your Tax Deadlines  

When it comes to taxes, timing is everything. One missed deadline could mean interest charges, late penalties, or even CRA collection calls and unlike clients, the CRA doesn’t care if you were “busy.”

Your filing and payment deadlines depend on how your business is structured, so let’s break it down:

♢  For Sole Proprietors (Unincorporated Businesses):  

If you’re operating as a sole proprietorship meaning you haven’t incorporated your business income is filed as part of your personal tax return (T1).

• Filing Deadline: June 15 of the following year
• Payment Deadline: April 30 (Yes — even though you get more time to file, your payment is still due earlier)

Example: If you earned income as a sole proprietor in 2025, you must pay your taxes by April 30, 2026 but your actual return isn’t due until June 15, 2026.

♢ For Corporations (Incorporated Businesses):  

If you’ve incorporated, your business files a T2 corporate tax return. The deadlines are based on your fiscal year-end — which isn’t always December 31.

• Filing Deadline: 6 months after your year-end
• Balance Due: 3 months after your year-end (for Canadian-controlled private corporations claiming the small business deduction)

Example: If your fiscal year ends on March 31, 2025:

• Your tax return (T2) is due by September 30, 2025
• Your taxes owing must be paid by June 30, 2025

♢  CRA Penalties Add Up Fast  

• Late filing penalty: 5% of the balance owing, plus 1% per month (up to 12 months)
• Late payment interest: Compounded daily and the rate fluctuates quarterly charges, especially if you're already tight on cash.

6. Consider a Reasonable Salary vs. Dividends Strategy (If Incorporated)  

Once you’ve incorporated your business, one of the most powerful tax planning decisions you’ll make is how to pay yourself.

Unlike sole proprietors, who simply withdraw profits, incorporated business owners can choose between salary, dividends, or a combination of both. Each option has different tax implications both for your business and your personal income.

Let’s break it down:

□ Salary (T4 Income)  

• Paid just like an employee through payroll
• Business can deduct the salary as an expense, lowering corporate taxes.
• Builds RRSP contribution room (18% of salary, up to CRA’s limit)
• Triggers CPP contributions (you and the corporation both pay)
• Requires payroll account and regular remittances to CRA

Best for: Business owners who want predictable income, RRSP benefits, and potential mortgage qualification (lenders love T4 income).

□  Dividends (T5 Income)  

• Not deducted as a business expense they come from after-tax corporate profits
• No CPP contributions required
• No RRSP contribution room generated
• Usually taxed at a lower personal rate than salary, depending on your income level
• Simpler administration no payroll setup required

Best for: Owners who want to minimize payroll complexity and are okay with no CPP or RRSP growth.

□ The Sweet Spot: A Salary + Dividends Mix  

In most cases, a blended approach works best. For example:

• A modest salary to create RRSP room and contribute to CPP
• Topped up with dividends to reduce overall tax burden

This combo offers the best of both worlds corporate tax savings, personal tax efficiency, and long-term retirement benefits.

Tip:  This isn’t a decision to leave for tax season. You should plan your compensation before your corporation’s year-end so your accountant can run the numbers and optimize your tax strategy accordingly.

7. Save for Taxes As You Earn  

Here’s one of the most common traps new business owners fall into:
You land a few clients, start earning solid revenue say, $10,000 in a month and use it all to pay bills, reinvest, or simply live. But then tax season hits and you realize over $2,000 of that should’ve gone to CRA.

The result? Stress, scrambling, and sometimes debt to cover a tax bill that could’ve easily been managed with a little planning. How to Stay Ahead of Tax Bills  

Whether you’re a sole proprietor or incorporated, taxes don’t come out automatically like they do when you're an employee. You’re responsible for saving and remitting what’s owed and the CRA doesn’t want to hear excuses.

◎  Best practice:  

Put aside 25–30% of every payment or invoice into a separate tax savings account. This creates a buffer to cover:

• GST/HST owed (if registered)
• Income taxes (personal or corporate)
• CPP contributions (if paying yourself a salary)

This habit turns tax time from a panic moment into a well-prepared routine.

◎  If You’re Incorporated: Know About Installments  

If your corporation regularly owes more than $3,000 in tax annually, CRA will expect you to make monthly or quarterly installments toward next year’s taxes. Failing to do so can result in interest and penalties — even if you pay the full balance at year-end.

Tip: If you’ve been in business for more than a year and your profit is consistent, CRA will often send a reminder notice with an installment schedule. Don’t ignore it.

Remember; Automate your tax savings. Set up a recurring transfer to a high-interest business savings account every time you receive payment. Out of sight, out of mind and earning interest while it sits.

8. Work With a CPA Early — Not Just at Tax Time  

Here’s the biggest tax mistake new business owners make: waiting until year-end to call their accountant. By then, it’s often too late to correct missteps, claim forgotten deductions, or take advantage of key planning opportunities.

The truth is, most of the serious tax issues we see missed filings, CRA penalties, overpaid taxes, audit troubles could have been avoided with a little early intervention. 

Why Working With a CPA From the Start Matters:  

☆ Proper Business Setup  

A CPA can help you:

• Choose the right legal structure (sole prop vs. incorporation)
• Register your business with CRA the right way
• Set up GST/HST, payroll, and other accounts based on your needs
• Open the right bank accounts and accounting systems from Day One

This avoids costly restructuring, missed tax benefits, or CRA letters asking why your HST wasn't filed.

☆ Quarterly Check-Ins (Not Year-End Panic)  

Instead of sorting 12 months of receipts at once, a good CPA will:

• Review your income and expenses every quarter
• Adjust your tax strategy if revenue jumps or drops
• Catch missing deductions or over-reported income before filing time
• Advise on when and how much to pay in tax installments.

This not only keeps your books clean, but ensures you’re never surprised by a tax bill again.

☆  Maximize Deductions — Without Triggering CRA  

Knowing what to claim is one thing knowing how to claim it safely is where a CPA shines. We’ll help you:

• Classify expenses properly
• Track home office and vehicle use accurately
• Keep receipts and logs in CRA-acceptable formats
• Avoid red flags (like meals, vehicle claims, and contractor payments)

This means you save more while staying audit-proof.

☆ GST/HST, Payroll, and CRA Compliance  

Mess up one of these and CRA won’t hesitate to charge penalties:

• GST/HST filing and payment deadlines
• Payroll remittances and T4 slips
• Director liability for missed source deductions

Your CPA will make sure all of this is set up, filed, and paid on time so you can stay focused on growing the business.