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What Taxes Does a Small Business in Canada Need to Pay?

What Taxes Does a Small Business in Canada Need to Pay

As a small business owner in Canada, you have far more to do than deal with sales, expenses and your customers. In addition, you must be aware of the taxes that will apply to your business, when they are due, and how to avoid having any surprise bills from the Canada Revenue Agency (CRA). 

The challenge is that small business taxes in Canada depend on how your business is structured, how much you earn, whether you have employees, and where you operate. A self-employed consultant and an incorporated company, for example, do not follow the same income tax rules. 

This Canadian business tax guide explains the main taxes small business owners, startups, and self-employed professionals should know, along with practical steps to stay compliant. 

1. Business Income Tax: Sole Proprietorship vs. Corporation

Your business structure determines how its profits are taxed.
  • Sole proprietorships

If you operate as a sole proprietor, your business is not a separate legal entity from you. You report your business income and eligible expenses on your personal income tax return using Form T2125, Statement of Business or Professional Activities. 

You pay personal income tax on your net business profit, even if you leave some of the money in your business bank account. The applicable federal and provincial or territorial tax rates depend on your total taxable income and where you live. 

Self-employed individuals may also need to pay both the employee and employer portions of Canada Pension Plan (CPP) contributions on their business income, subject to the applicable rules and limits. 

  • Incorporated businesses

A corporation is a separate legal entity and files its own T2 Corporation Income Tax Return. 

Eligible Canadian-controlled private corporations (CCPCs) can generally access the federal small business deduction on qualifying active business income, up to the applicable $500,000 annual business limit. This reduces the federal corporate income tax rate on eligible income to 9%, with provincial or territorial corporate taxes added separately. 

The general rate of tax on corporate income is 15% (before any provincial or territorial tax or deduction). 

But this does not indicate that a lower corporate tax rate automatically lowers overall taxes. Corporate tax consequences do not exist in isolation, as personal tax consequences come as part of a withdrawal of corporate profits as salary or dividends. Advantages of incorporation include a tax deferral option; however, it will depend on your situation. 

What to Know: Sole proprietors report business income on their personal income tax returns, while corporations are separate legal entities that file their own corporate income tax returns. The right structure depends on profitability, personal cash requirements, growth objectives, and compliance expenses. 

2. GST/HST and Provincial Sales Taxes

Another important element of taxes for small businesses in Canada is GST/HST. If you are a seller of taxable goods or services, you might need to register, charge the appropriate tax to customers, submit returns and pay the tax you have collected.
  • When must you register for GST/HST?

Most businesses are classified as ‘small suppliers’ provided that their total turnover from supplies, excluding supplies from associated persons, for the calendar quarters (or four consecutive calendar quarters) is not more than $30,000, taking into consideration the rules of the CRA. 

If you cross the threshold, your registration and collection requirements will be determined by when and how it is crossed. Voluntary registration can be done before compulsory registration, and may enable you to claim input tax credits on eligible business purchases. 

Do not treat GST/HST collected from customers as business income. It is generally money you collect for the government, less eligible input tax credits. 

  • Which sales tax rate applies in your province?
For most taxable supplies, the applicable rates are:

Province or territory 

GST/HST rate 

Alberta, British Columbia, Manitoba, Quebec, Saskatchewan, Nunavut, Yukon, and Northwest Territories 

5% GST 

Ontario 

13% HST 

Nova Scotia 

14% HST 

New Brunswick, Newfoundland and Labrador, Prince Edward Island 

15% HST 

Other options include provincial sales taxes in British Columbia, Manitoba, Quebec and Saskatchewan. Quebec has its own set of QST rules and administration, and provincial rules and collection requirements differ. 

You will charge a different rate based on the type and place of supply rules, not just the location of your business. Companies that sell across the provinces should verify the applicable rate for every sale. 

3. Payroll Taxes and Employer Contributions

Hiring employees creates additional tax responsibilities. Typically, employers are required to withhold the following from an employee’s wages:
  • Federal and applicable provincial or territorial income tax
  • Canada Pension Plan (CPP) contributions, or Quebec Pension Plan (QPP) contributions where applicable
  • Employment Insurance (EI) premiums
  • Quebec-specific payroll contributions where applicable, including Quebec Parental Insurance Plan (QPIP) premiums

Employers must also contribute their required share of CPP or QPP and EI, along with applicable employer payroll contributions. 

These deductions must be remitted to the CRA or the relevant authority by the assigned deadlines. Employers must also maintain payroll records and prepare the required information slips, including T4 slips for employees. 

If you pay yourself a salary through your corporation, payroll obligations may apply to those payments as well. By contrast, a sole proprietor generally does not put their own business drawings through employee payroll. 

Practical tip: Set up a special payroll process before you pay the first employee. Keeping accurate records, making timely payments, and regular payroll reconciliations are among the factors that can avoid interest and penalties. 

4. Income Tax Instalments: Do Not Wait Until Tax Season

When a big tax bill comes after a year of success, any small business owner is likely to struggle to meet its obligations. Instalments help spread eligible income tax payments throughout the year.
  • Personal income tax instalments

Self-employed individuals may have to make quarterly income tax instalments when their net tax owing exceeds the CRA’s applicable threshold in the current year and either of the two preceding years. 

For 2026, the general threshold is more than $3,000 in net tax owing, or more than $1,800 for Quebec residents, subject to the CRA’s eligibility rules. 

The usual quarterly due dates are March 15, June 15, September 15, and December 15. 

  • Corporate income tax instalments

Corporations may also need to make instalment payments during their tax year. Depending on eligibility and circumstances, payments are generally monthly, although qualifying small CCPCs may be permitted to pay quarterly. 

A corporation’s final tax balance is generally due two months after its fiscal year-end. Eligible CCPCs meeting the relevant conditions may qualify for a three-month balance-due period. 

Remember that the tax return filing deadline and the tax payment deadline are not necessarily the same. Corporations generally have six months after their fiscal year-end to file their T2 return, even though their tax balance may be due earlier. 

Make sound plans for instalment payments based on accurate bookkeeping and up-to-date profit projections. When there is a significant change in income, make new estimates instead of assuming last year’s income without question. 

5. Other Taxes and Contributions to Consider

There may be other tax obligations to consider depending on your business activities.
  • Provincial and territorial corporate income tax: Incorporated businesses generally pay provincial or territorial income tax in addition to federal corporate tax. Rates and small business deductions vary by jurisdiction.
  • Provincial sales tax (PST) or QST: Businesses selling taxable goods or services in certain provinces may need to register for and collect these taxes separately from GST/HST.
  • Property and municipal taxes: If your business owns commercial property, local property taxes may apply. Some municipalities also impose business-related fees or taxes.
  • Industry-specific taxes and levies: Certain activities, such as selling fuel or tobacco, can trigger additional obligations.
Not every business pays every tax. Your location, products, services, assets, and business structure determine which rules apply.

6. How to Manage Small Business Taxes Throughout the Year

You do not have to wait until tax season to get your finances in order. A consistent accounting routine can make tax obligations easier to manage. 

Here are five practical steps: 

  • Keep business and personal finances apart. Ensure all business transactions are made easier by using separate business bank accounts and credit cards.
  • Ensure that your bookkeeping is up-to-date. Keep track of income, expenses, payroll and sales taxes on a continual basis, not piecing together months of activity before taxes are due.
  • Save for taxes. Put some of the money in the savings account that you have. The amount should be based on the estimated tax liability, not on a percentage.
  • Keep a record of all filing and payment deadlines. Keep an income tax, GST/HST and payroll remittance, and corporate filing calendar.
  • Check your financial statements often. You can look at monthly profit and loss statements, balance sheets and cash flow statements, and make educated guesses about liabilities and problems early on.

How Online Accountant Can Help

With reliable accounting records and expert advice, you can better understand the taxes your small business will face in Canada. Proper support can prepare you for your tax obligations, fulfill the resolution’s needs, and support informed decision-making as your business grows. 

Online Accountant provides cloud-based accounting support for Canadian small and owner-managed businesses, combining modern accounting systems with CPA-led expertise. 

Whether you are self-employed, launching a startup, or managing an incorporated company, Online Accountant can help with bookkeeping, financial reporting, tax preparation, and ongoing financial management. With accurate records and a clearer view of your obligations, you can spend less time worrying about tax deadlines and more time running your business. 

Ready to take control of your business finances? Visit Online Accountant to explore accounting solutions tailored to your business needs. 

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