Glossary
NPOs, and more
all the way to NPOs and the “Notice to Reader.”
An accountant is a professional who maintains, organizes, and interprets the finances of an individual or a business. They prepare financial statements, file tax returns, advise on business decisions, and ensure compliance with federal and provincial regulations. Not all accountants hold the CPA designation, but all can help you manage your finances.
CPA stands for Chartered Professional Accountant. It is a protected title regulated by a provincial professional body (in Quebec, the Ordre des comptables professionnels agréés du Québec). A CPA has completed recognized training and passed a recognized exam, and must adhere to a code of ethics. Only a CPA can sign off on certain engagements, such as an audit. Not all accountants are CPAs.
A tax specialist is an expert in taxes and tax planning. While an accountant handles all aspects of your finances, a tax specialist focuses on strategies: optimizing compensation, structuring a sale, and reducing taxes related to an estate or a reorganization. You consult with a tax specialist for complex tax decisions, often in conjunction with your accountant.
The bookkeeper records the business’s daily transactions: invoices, expenses, payroll, and bank reconciliations. They maintain accurate and up-to-date data, which the accountant then uses to prepare financial statements and tax returns. This is a role distinct from that of an accountant: essential for keeping the numbers in order, but without the authority to provide tax advice or sign financial statements.
The bookkeeping is the systematic recording of all the business’s financial transactions: sales, purchases, payroll, cash receipts, and cash disbursements. Accurate bookkeeping provides reliable figures, justifies each deduction in the event of an audit, and ensures that tax returns are filed on time. It is the foundation upon which income tax, GST/QST, and all informed business decisions are based.
business numbers, tax remittances, source deductions, and tax instalments all go through the CRA
Revenu Québec is Quebec’s provincial tax authority. It collects provincial income tax from individuals (TP1) and corporations (CO-17), administers the QST, and, uniquely in Canada, also collects the GST within its jurisdiction on behalf of the federal government. A Quebec entrepreneur therefore files returns with Revenu Québec in addition to those filed with the CRA.
The GST (Goods and Services Tax) is the federal sales tax; the QST (Quebec Sales Tax) is its provincial equivalent. You collect these taxes on your taxable sales and remit them to the governments: they are not your revenue, but taxes collected on their behalf. In return, you can claim back the taxes paid on your business purchases.
You must register for the GST and QST as soon as your taxable sales exceed $30,000 over four consecutive calendar quarters. Below this threshold, you are considered a small supplier, and registration remains optional. The calculation is based on your taxable revenue, not your profit. Voluntarily registering may be advantageous if you pay a lot of tax on your purchases.
Once you’re registered for taxes, you can claim back the GST and QST paid on your business purchases: these are called input tax credits (ITCs) for the GST and input tax refunds (ITRs) for the QST. You only remit to the government the difference between the tax collected on your sales and the tax you paid.
Source deductions, known in Quebec as DAS, are the amounts
along with Form T2125 (Statement of Business or Professional Activities) at the federal level
Form T2 is the federal corporate tax return; Form CO-17 is the provincial tax return in Quebec. An incorporated company, which is a separate tax entity from its shareholders, files both of these returns and pays corporate income tax on its profits. These returns are generally due six months after the end of the fiscal year, but the tax balance is often due sooner.
Form T4 is the federal form that an employer provides to each employee to report their wages and the withholdings made during the year; RL-1 (RL-1) is its provincial equivalent in Quebec. Employees use these forms to file their personal tax returns. Employers must prepare these forms, provide them to employees, and submit them to the relevant authorities by the specified deadlines.
The tax instalments are advance payments of your taxes, made in instalments throughout the year rather than in a single payment. The CRA and Revenu Québec require them when your net tax liability exceeds a certain threshold for the current year and at least one of the two previous years. They apply to both self-employed individuals and corporations and help avoid interest on late payments.
The fiscal year, or financial year, is the 12-month period over which a business measures its results and prepares its financial statements. For individuals and self-employed individuals, it corresponds to the calendar year (January 1 through December 31). A corporation may choose a different fiscal year-end date, which determines its tax filing and payment deadlines.
A self-employed worker carries out business activities in their own name, without being incorporated. For tax purposes, the worker and their business are considered a single entity: all of their income and expenses are reported on their personal tax return (T1 and TP1). They contribute to the QPP based on their net income, often paying both portions, and must calculate their own tax liability, as no tax is withheld at source.
A sole proprietorship is the simplest legal structure: one person operates a business in their own name, without creating a separate entity. For tax and legal purposes, the business is treated as one and the same as its owner, who is personally liable for the business’s debts with their personal assets. Profits are taxed on the owner’s personal tax return. It’s quick to set up, but lacks the protection and benefits of an incorporated company.
Incorporation involves creating a corporation: a legal entity separate from its owners. It owns its own assets, incurs its own debts, files its own tax returns (T2 and CO-17), and pays its own taxes. Incorporation can offer protection for personal assets and tax planning opportunities, but comes with increased administrative obligations. You can incorporate at the federal or provincial level.
An NPO is an entity established
An expense is deductible when it is incurred to earn business income, is reasonable, and is supported by a receipt. Deducting it reduces your taxable income, and therefore your tax liability. Common examples include supplies, rent, professional fees, the business portion of vehicle expenses, and home office expenses. Keep every receipt: in the event of an audit, documentation is key.
Depreciation spreads the cost of a durable asset (equipment, vehicle, furniture) over its useful life, rather than deducting it all in a single year. For tax purposes, this is referred to as the CCA: each asset category has its own rate. The CCA reduces taxable income in the years the asset is in use. It is a key mechanism for businesses that invest in equipment.
A tax credit directly reduces the amount of tax owed, whereas a deduction reduces taxable income before the tax is calculated. For business owners, certain credits can result in significant savings, particularly in areas such as innovation (scientific research and experimental development), investment, or by industry. Eligibility and rates change from year to year at both the federal and provincial levels; they should be reviewed annually.
The small business deduction (SBD) allows a Canadian-controlled private corporation to pay a reduced tax rate on the first portion of its eligible active business income. This is one of the main tax benefits of incorporation: it leaves more money in the company to reinvest or defer personal taxation. Conditions and limits apply at both the federal and provincial levels.
When your business is incorporated, you can compensate yourself through a salary, dividends, or a combination of both. A salary is tax-deductible for the company, triggers QPP and RRSP contribution entitlements, but results in source deductions. A dividend is paid out of after-tax profits, is not tax-deductible, and does not create QPP entitlements. The right balance depends on your situation.
Financial statements present a business’s financial position at a given point in time and its results over a period. They generally consist of the balance sheet, the income statement, and the cash flow statement. They are used to assess the business’s financial health, support financing applications, file tax returns, and make decisions. An accountant prepares them based on reliable bookkeeping records.
A notice to reader, also known as a compilation engagement, is the simplest type of accounting engagement. The accountant compiles the financial statements using data provided by the business, without verifying its accuracy or providing assurance regarding its fairness. This is often sufficient for internal use or for a financial institution that does not require otherwise. It is less expensive than a review or an audit.
A review and an audit provide higher levels of assurance than a notice to reader. In a review engagement, the accountant performs analyses and requests information to provide limited assurance. An audit goes further: it provides reasonable assurance that the financial statements are accurate, and only a CPA can perform it. Banks, investors, or lenders may require it.
The Quebec Pension Plan (QPP) is Quebec’s public pension plan, funded by contributions deducted from earned income. Both the employee and the employer contribute their respective shares; self-employed individuals often pay both shares from their net business income. These contributions build up entitlement to retirement, disability, and survivor benefits.
The balance sheet shows what the business owns (assets), what it owes (liabilities), and its net worth as of a given date. The income statement shows revenue and expenses over a period of time, and thus the profit or loss. The cash flow statement tracks actual cash inflows and outflows. Together, these three documents provide a complete picture of your business’s financial health.
Every CPA is an accountant, but the reverse is not true. CPA (Chartered Professional Accountant) is a protected title, regulated by a provincial professional association, which requires training, an exam, and adherence to a code of ethics. Only a CPA can sign off on certain engagements, such as an audit. An accountant without the accountant designation can still maintain your books, file your tax returns, and provide you with advice.
the accountant interprets them and takes on the professional responsibility for your tax filings
You must register as soon as your taxable sales exceed $30,000 over four consecutive calendar quarters. Below this threshold, you are considered a small supplier, and registration is optional. The calculation is based on your taxable revenue, not your profit. Voluntarily registering may be advantageous if you pay a lot of taxes on your business purchases.
Form T1 is the individual tax return: a self-employed person reports their business income on this form (along with Form TP1 in Quebec). The T2 is the corporate tax return: an incorporated business, a separate entity from its shareholders, files this to pay its own taxes (along with the CO-17 in Quebec). Your business structure determines which form applies to you.
choosing a business structure, taxes, tax instalments, deductions, and compensation
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General information provided for informational purposes only, based on known 2026 tax rules. It is not a substitute for the advice of a Chartered Professional Accountant (CPA): always consult a professional regarding your specific situation.
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