Tax guide for entrepreneurs

What taxes and duties must an entrepreneur pay? Canada ?

A Canadian entrepreneur faces two levels: the federal (Canada Revenue Agency) Canada (the CRA) and the provincial government (in Quebec, Revenu Québec). Depending on your structure, you pay income tax (personal or corporate), you collect and remit VAT, and you pay source deductions (DAS) if you have employees.

Your obligations depend primarily on your legal structure. Sole traders and businesses are considered a single tax entity with you: everything is handled through your personal tax return. A incorporated company is a separate legal entity that files its own tax return and pays its own taxes.

• Self-employed: tax via personal declaration (T1 / TP1); VAT from €30,000 of sales; possible advance payments; DAS only if employer.
• Company incorporated: company declaration (T2 / CO-17); VAT from €30,000; possible advance payments; DAS on salaries paid.
• Employer (with employees): source deductions (tax, QPP, EI, QPIP) in addition to its other obligations.

Distinguishing these flows is the first tax skill of an entrepreneur: not to confuse the tax collected (which does not belong to you) with your actual taxable income.

Self-employed tax (T1 and TP1)

Self-employed individuals report their business income on their personal income tax return: the federal T1 (along with the statement of business activities, form T2125) and the Quebec TP1. Their net business income is added to their other income and taxed at the combined progressive personal, federal, and provincial tax rates.

In practice, you add up your professional income, subtract your eligible expenses, and the net profit becomes taxable. Since no tax is withheld at source on this income, you must plan the amount to be paid, ideally by setting aside a percentage of each income payment.

• You contribute to Social Security on your net business income, often both the employee and employer shares.
• You can usually deduct your legitimate operating expenses.
• Your T1 and TP1 returns have a specific filing deadline for self-employed individuals, but the tax payable is still due on April 30th.
• Rigorous bookkeeping justifies every deduction in the event of an audit.

Corporate tax (T2 and CO-17);

A corporation is a separate tax entity. It files its own income tax return, the T2 at the federal level and the CO-17 in Quebec, and pays corporate income tax on its profits. You, the shareholder, are taxed separately, only on what you withdraw from the corporation (salary or dividends).

This separation creates planning opportunities, but also additional obligations. The small business tax rate is generally lower on the first portion of eligible active income qualifying for the small business deduction.

• The T2/CO-17 return is usually due six months after the end of the financial year, but the tax balance often arrives earlier.
• An active company produces both T2 (federal) and CO-17 (provincial).
• Keeping separate business accounts from your personal accounts is essential.

Bankeo is not a firm: be partnered with an accountant who understands corporate tax and your reality as a shareholder.

VAT: the threshold of 30,000?

At Canada You must register for GST, and in Quebec for 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 is not mandatory. Once registered, you collect these taxes on your sales and remit them to the government.

The GST and QST are not a cost to you: you collect them on behalf of the CRA and Revenu Québec. In return, you recover the taxes paid on your business purchases through input tax credits (ITCs) and input tax refunds (ITRs). Therefore, you only remit the difference between the tax collected and the tax paid.

• The $30,000 threshold is assessed on your taxable income, not on your profit.
• Even below the threshold, voluntarily registering can be advantageous if you purchase a lot of taxable inputs.
• The production frequency (monthly, quarterly or annually) depends on your sales volume.
• Set aside the tax collected: it's money owed, not income.

Deposits: when and how much?

Tax installments are advance payments of your income tax, made throughout the year rather than in a single payment. The IRS and Revenu Québec require them when the net tax you owe exceeds a certain amount for the current year and at least one of the two preceding years.

• The IRS and Revenu Québec often send notices with suggested amounts, calculated based on your past years.
• You can estimate your current year's tax if your income decreases, but an underestimation exposes you to interest.
• Note the four payment dates and set aside the necessary funds in advance.
• An accountant can calculate the right amount so as not to tie up too much cash.

What expenses are tax-deductible (and what about a home office)?

An expense is deductible when it is incurred to earn business income, is reasonable, and is supported by documentation. Deducting your legitimate expenses reduces your taxable income, and therefore your tax. The golden rule: keep every invoice and receipt.

• Supplies, equipment and software used for the business.
• Office expenses, premises rental, business insurance.
• Professional fees (accountant, lawyer, consultants).
• Vehicle expenses for the professional use portion, with a travel log.
• Meal and entertainment expenses, generally deductible up to a limited percentage.
• Advertising, marketing and business banking fees.

A home office deserves special attention. If you use part of your home primarily for your business, you can deduct a portion of your home expenses proportional to the business space. An accountant can advise you on what qualifies and how to calculate the proportion without overstating the deduction.

Tax credits you should know

A tax credit directly reduces the tax payable, while a deduction reduces taxable income. For entrepreneurs, certain credits represent significant savings, particularly in innovation, hiring, and investment. Many exist at both the federal and provincial levels, and they change regularly.

• Funding for scientific research and experimental development (SR&ED at the federal level), often combined with provincial measures.
• Credits related to investment and acquisition of eligible equipment.
• Sector-specific credits (technology, culture, digital transformation) according to your department and activity.
• Hiring or training credits, depending on the programs in effect.

Since eligibility and rates change from year to year, treat loans like a file that needs to be reviewed annually. An accountant or tax specialist can identify loans you're leaving unaddressed.

Salary or dividends: legally optimizing your compensation

If your business is incorporated, you can pay yourself a salary, dividends , or a combination of both. This choice affects your personal income tax, corporate income tax, your contributions to the Quebec Pension Plan (QPP), and certain benefits. There is no single answer.

• Salary: deductible for the company, generates CNSS and RRSP rights, but results in DAS and more paperwork.
• Dividends: not deductible, do not create QPP or RRSP rights, no DAS, simpler to pay.

Legitimate tax optimization involves structuring your compensation and expenses in accordance with the rules, not circumventing them. This is an area where a strategic error is costly: it's the kind of decision that warrants consulting an accountant or tax specialist before taking action.

When should you hire an accountant for your taxes?

You benefit from consulting an accountant as soon as your tax obligations go beyond a simple tax return: first year of business, exceeding the €30,000 threshold, incorporation, first employees, tax credit applications, or salary choices. A good accountant doesn't just prepare your tax returns: they plan, prevent penalties, and find savings you might not otherwise see. In terms of budget, the Bankeo Barometer places the median accounting fees at around €3,000 per year, ranging from €500 to €6,000 depending on the sector.

Bankeo is not an accounting firm. We match you with the right accountant for your situation, industry, and needs, free of charge, from a network of over 1,500 accountants. You fill out a request, and we present you with the perfect match—as many verified accountants as necessary to find the right one for you, usually within 48 hours. The service is free for entrepreneurs, with no obligation, and we remain by your side: if the match is no longer suitable, even later on, we'll find you another one at no cost.

Since 2023, Bankeo has received over 15,000 requests and boasts a 4.7/5 rating based on 180+ Google reviews. Whether you're a self-employed individual filing your first TP1 form or a company preparing its CO-17 form, you can find an accountant who speaks your tax language, without having to shop around blindly.

When does an entrepreneur have to register for VAT?

You must register for GST at the federal level and QST in Quebec 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, but sometimes advantageous if you pay significant taxes on your business purchases.

Do I need an accountant if I am self-employed?

It's not mandatory, but highly recommended as soon as your income increases. An accountant ensures your T1 and TP1 tax returns are compliant, maximizes your eligible deductions, calculates your advance payments, and helps you avoid penalties. Bankeo connects you with an accountant suited to your situation, free of charge, usually within 48 hours.

What is the difference between the tax treatment of a self-employed individual and that of a company?

A self-employed individual declares their business income on their personal tax return (T1 and TP1), and the tax is added to their other income. A incorporated company is a separate entity: it files its own tax return (T2 and CO-17) and pays corporate tax, while you are only taxed on the income you derive from it.

How do I know if I have to pay deposits?

You generally have to make instalment payments when your net tax payable exceeds a certain threshold for the current year and at least one of the two preceding years. The IRS and Revenu Québec often send notices with suggested amounts. An accountant can calculate the fair amount to avoid interest.

How much does it cost to hire an accountant to do my business taxes?

The cost varies depending on the complexity of your case, your company structure, and the volume of transactions. Bankeo's matching service, however, is completely free for entrepreneurs: you are connected with vetted accountants, without any fees or commitment, and you then discuss fees directly with the one you choose.

What expenses can I deduct from my professional income?

You can deduct reasonable expenses incurred to earn business income, provided they are supported by documentation: supplies, office expenses, professional fees, the portion of your vehicle used for business purposes, advertising, and a portion of your home office expenses. Keep each receipt to substantiate your deductions in case of an audit.