What are the tax considerations and liabilities for small businesses and self-employed professionals?

Sole Proprietor Or Incorporated Changes The Tax Picture

Sole proprietors report business income directly on their personal tax return. An incorporated business is taxed separately at corporate rates, and the owner is taxed again personally when they draw income out through salary or dividends — a structural difference that shapes almost every other decision below.

Self-Employed CPP Is Doubled

Self-employed individuals pay both the employer and employee portions of CPP contributions on their earnings. It's a cost that's often underestimated when comparing self-employment income to an equivalent salaried role.

Instalment Payments Can Catch New Business Owners Off Guard

The CRA may require quarterly tax instalments once net tax owing exceeds a set threshold in two consecutive years, rather than one payment at filing time — a cash-flow planning point that surprises many people in their first profitable years.

Common Deductible Expenses

Reasonable business-use expenses — a portion of home office costs, vehicle use for business purposes, supplies, professional fees, and advertising — are generally eligible, provided they are reasonable in the circumstances and properly documented.

GST/HST Registration

Registration is generally required once total revenue exceeds $30,000 over four consecutive calendar quarters (the 'small supplier' threshold), though registering voluntarily before that point can sometimes make sense in order to recover input tax credits.

Salary Vs. Dividends, And RRSP Room

For incorporated owners, salary creates RRSP contribution room and CPP contributions, while dividends don't. The right mix between the two depends on personal cash-flow needs, retirement savings goals, and the overall tax picture — and it's often revisited as the business changes.

This article is for general education only and is not personalized financial, investment, insurance, or tax advice. Speak with a qualified advisor before making financial decisions.