Tax Obligations Every Canadian Small Business Should Know
Table of Contents
When starting a business, it can be confusing and a little overwhelming to keep on top of the different types of tax filings that need to be submitted and ensuring that these tax deadlines are met. It isn’t always clear, particularly to a new business owner, as to what the various documents from Revenue Canada or Revenue Quebec relate to., which often contains jargon that requires decoding. (for example payroll remittances are referred to as deductions at source). It can be easy to ignore these notices in favour of more pressing business related issues, which is probably the worst thing to do since the government is extremely persistent and will usually follow up with arbitrary assessments and interest and penalties. It is therefore prudent for both sole proprietorships and incorporated businesses to keep on top of their tax filings
Check out my videos below for taxes for sole proprietorships and taxes for corporations:
Payroll/Salary Tax Obligations:
If you hire employees or if you are incorporated and the owners are would like to pay themselves a salary, you have the following two obligations whether you are unincorporated or incorporated:
Monthly Payroll Remittances to Revenue Canada (and Revenue Quebec, if applicable)
File payroll reports which include deductions at source returns on a periodic basis. Businesses are required to calculate and remit the amount of deductions at source owing to government either monthly or quarterly (Both CRA and RQ will send letters advising you of the frequency).
Note that the remittances can still be made monthly, even if you have received a letter indicating that you are allowed to file quarterly.
If you do not have any payroll in a month or period, you can simply file a $0 or nil return, online with both CRA and RQ.
Year end Tax Slips
Federal
You must prepare a summary of the salaries paid for the year via a T4 slips for which the due date is February 28th of the year following the salary payment E.g. February 28, 2025 for the year ended December 31, 2024.
Note if you file the T4 slips online, no summary is required.
Quebec
Additionally, if you are registered in Quebec you have to file a second set of reports including deductions at source, RL-1 slips and summaries and annual CSST returns.
Articles Relating to Payroll/Salaries, Deductions at Source and T4s
4 Alternatives to Preparing your Payroll, Deductions at Source and Annual Returns
An explanation of Salary Deductions including CPP, EI and Federal Income Taxes
GST-HST-QST Tax Obligations
If you are Canadian small business that has more that $30,000 per year in revenues and you are not considered to be exempt or zero rated, you are required to register for and file GST-HST returns either monthly, quarterly or annually whether are simply registered (unincorporated) or incorporated. If you are registered in Quebec, you are also required to file QST Returns.
Sales tax returns reflect the amounts charged on products and services, which are collected on behalf of the government. The amount charged to your customer is usually based on the province in which your customer/client is located, however, there may be additional complexities.
GST/HST and QST that are paid on business expenses can be claimed back on the same form and reduce the amount payable
Articles Relating to GST/HST and QST
Income/Corporate Tax Obligations
Incorporated Businesses
All incorporated businesses are required to file Corporate Tax Returns also referred to as the T2 *and CO-17 in Quebec). For incorporated business owners filing a T2 , which is federal corporate tax schedule and CO-17 which is the corporate tax form required by Revenue Quebec, it is important that you select the year end, which is usually up to a year after their incorporation date (note corporations do not have to have a year end at December 31st). Since T2s and CO-17s are somewhat complex, it is usually a good idea to have an accountant prepare them for you to ensure that all the filing requirements are met and that the small business tax deduction is properly calculated.
Articles Relating to Corporate Taxes
Corporate Tax for Small Business
Unincorporated Businesses
Unincorporated business i.e. sole proprietorships and partnership owners are required to complete the T2125- Statement of Business Activities which is the statement of business activities schedule that is available on their Personal Tax Returns.
Articles Relating to Small Business Taxes
Dividend Declarations (Corporations Only)
A shareholder of a corporation may pay themselves a dividend instead of a salary or in addition to a salary. The administration and tax filings is significantly less onerous than for payroll, however, there are other drawbacks. Whether to take a salary or a dividend in Canada depends on your circumstances and should be considered carefully.
Dividends paid to owners of businesses in Canada must prepare a T5 slip once a year and submit them to Revenue Canada. The deadline to complete the T5 is February 28th of the year following the salary payment E.g. February 28, 2025 for the year ended December 31, 2024.
If you are in Quebec, you must also complete and submit an RL-3 slip to Revenue Quebec.
Articles Relating to Small Business Dividends
Annual Returns
Annual returns are a business filing, separate from the corporate tax returns, where business information is updated every year along with payment of an annual fee.
If your business is registered federally you are required to update annually with Industry Canada Various provincial bodies also have their own filing requirements and forms.
In Quebec this is done through the enterprise register, however, the annual return can also be filed by completing the specific section in the T2125 for unincorporated business owners and through the CO-17 for corporations. If this is not done on a timely basis, it can result in delisting of your business.
Although the CRA and provincial revenue agencies are generally good at keeping business apprised of their filing obligations, notices are sometimes unclear or get lost in the mail. Ultimately, the onus is on the business owner to ensure that tax reports are filed on time and related amounts are paid. One of the best ways to keep on top of this is to register your business online with CRA and Revenue Quebec.
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