Things to know when filing taxes as a small business owner

“It’s the most wonderful tiiiiime of the year…”

Is what most tax professionals in Canada will be singing right about now.

You, on the other hand, might be singing a VERY different tune—but that’s okay! Filing taxes, and all the various intricacies and rules involved, can twist most of us up into tedious knots.

Rather than muddling through, we’ve consulted Jason Simon, a tax partner with Kraft Berger LLP. Jason provides timely, practical and technically sound tax advice for clients of all sizes.

And he’s here to help break down all the things small business owners like you need to know when filing their taxes this season. Now let’s get started!

Things to know before filing taxes

1. Understand your business structure and its tax implications

If you’re running a business that isn’t incorporated and doesn’t have partners, you’re probably a sole proprietor.

And as a sole proprietor, you and your business are considered the same entity for tax purposes.

Not being incorporated doesn’t really limit what your business can do, either. You can still have employees, rent a workspace and enter into commercial contracts.

But—any business income you make is to be reported by completing Form T2125 – Statement of Business or Professional Activities, which is filed together with your T1 personal income tax return. Additionally, you’ll be taxed at your personal rate since you and your business are considered the same entity.

If you are an incorporated business, this changes your tax return filing and tax rate, as incorporating creates a separate legal entity. This means your business files its own T2 corporate tax return, while you file your personal taxes separately.

One of the biggest reasons why people incorporate is to access tax rates that are often significantly lower than personal marginal tax rates.

Plus, if you decide to leave profits within the corporation rather than paying them out as salary and dividends, you may end up with more after-tax cash available to reinvest and grow your business.

2. Keep clean, consistent records

Think of this as your business’ “paper trail.” Like when they used to ask you to “show your work” in school. Good records help you to:

• Understand, first and foremost, how your business is doing.
• Stay within the compliance lanes in case the dedicated folks at Canada Revenue Agency (CRA) ever come knocking.
• Avoid missing deductions that leave money on the table—or making costly mistakes when filing.

How to keep good records

Accounting software such as QuickBooks is a popular way to track income and expenses efficiently. Even using plain old spreadsheets can be fine if your business is smaller and less complex. However, this approach is suggested only for owners who are comfortable working with spreadsheets and have simple transactions.

Regardless of what system you use, make sure you keep:

• Sales invoices issued to customers
• Expense receipts and supplier invoices
• Contracts and agreements
• Bank and credit card statements

3. Know what counts as a business expense

Know the saying, “spend money to make money”? That’s kind of the idea here with business expenses. If your expense is “reasonable” and directly related to running your business and earning income, there’s a good chance it can be deducted.

A few common business expenses include:

• Rent or office space
• Supplies and materials
• Employee wages or subcontractor payments
• Cost of goods sold
• Client meals (with some limits)

4. Find your industry code

Every business in North America is classified under a North American Industry Classification System (NAICS) code. You’ll need your code for tax filings, and it can be looked up on Statistics Canada’s website.

5. Collecting and filing GST and HST

There’s a very good chance you’ll deal with the Goods and Sales Tax (GST) and Harmonized Sales Tax (HST) at some point. Here are essential bits of info to know:

First, if your revenue passes a certain threshold, you may need to register for a GST/HST account with CRA, collect tax from your customers, file GST/HST returns and then remit any tax you’ve collected. The frequency of filing and remittance depends on the level of taxable revenues and may increase as your business grows.

Keep in mind: some types of revenue (like certain medical services or exports of goods and services outside of Canada) are considered exempt or “zero-rated.” That means GST/HST doesn’t apply.

You can also claim Input Tax Credits (ITCs) to recover GST/HST paid on business expenses, which can result in having to remit less tax or even getting a refund!

6. Important tax filing dates and deadlines

A sole proprietor who earns business income generally has until June 15 of the following year to file their personal income tax return.

For example: a return reporting 2025 business income would be due June 15, 2026.

However, any balance owing must still be paid by April 30 to avoid interest charges.

If you’re a corporation, you have six months until the end of your fiscal year to file your corporate income tax return (T2).

How to file taxes as a self-employed business owner

If you get anything out of this blog, remember this five-step filing checklist and you should be doing just fine come tax time!

1. Check if you need to register for GST/HST
2. Collect and record GST/HST on taxable supplies, if applicable
3. Track all income and expenses (accurately!)
4. File your T2125 with your personal tax return to report business income
5. Consider working with an accountant! Tax rules can get complicated and the price of getting things wrong or not being compliant can be high.

We hope your tax filing is relatively smooth and stress free! Interested in incorporating your business? Check out our blog about the benefits of incorporating your Canadian business.