Cash Flow Tips for New Corporations: Planning for Tax Obligations Without the Panic
Starting a corporation is a major milestone, but it also comes with a new level of financial responsibility. One of the most common challenges new business owners face is managing cash flow while staying on top of tax obligations. From GST to corporate tax, WCB premiums to payroll deductions, here’s how to plan ahead so you’re never caught off guard.
1. GST: Set It Aside as You Go
If you’re registered for GST, remember that the tax you collect on sales isn’t yours to keep, it’s owed to the CRA. To avoid scrambling at filing time:
Open a separate savings account and transfer the GST portion of each sale into it.
Track input tax credits (GST paid on business expenses) using bookkeeping software like QuickBooks Online.
File on time to avoid penalties and interest.
2. WCB Premiums: Budget for Worker Coverage
If you have employees or are in a covered industry, WorkSafeBC premiums are mandatory. Even if you're a solo operator, you may choose optional coverage for yourself.
Estimate premiums based on payroll and industry classification.
Set aside monthly reserves to cover quarterly or annual payments.
Review your classification annually to ensure you're not overpaying.
3. Corporate Tax: Plan for Your Year-End
Corporations in Canada must file a T2 corporate tax return annually. You choose your fiscal year-end, but the tax is due three months after that date.
Set aside a percentage of net income each month (typically 12–15%) to cover corporate tax.
Consider installment payments if your tax liability exceeds $3,000 annually.
Work with a tax advisor to optimize deductions and defer income strategically.
4. Personal Tax: Salary vs Dividends
If you're withdrawing money from the corporation, it’s taxed personally, either as salary or dividends.
Salary requires payroll setup, with monthly remittances for CPP, EI, and income tax.
Dividends are simpler, but may result in a personal tax bill in April.
Budget for personal tax by estimating your total withdrawals and setting aside funds accordingly.
5. Payroll Deductions: Don’t Forget the CRA’s Cut
If you pay yourself or employees via salary, you must remit payroll deductions monthly.
Use CRA’s Payroll Deductions Online Calculator to estimate amounts.
Set up automatic transfers to a payroll reserve account.
File T4 slips at year-end to stay compliant.
6. Installment Payments: Know When They Apply
If your corporation or personal tax owing exceeds $3,000 in a year, CRA may require quarterly installments.
CRA will notify you, but it’s smart to forecast ahead and avoid surprises.
Treat installments like a recurring bill, automate them if possible.
7. Proactive Planning = Peace of Mind
Cash flow isn’t just about having money in the bank, it’s about knowing what’s coming. Here’s how to stay ahead:
Use cloud-based bookkeeping to track income and expenses in real time.
Review your financials monthly to spot trends and adjust.
Work with a tax professional to build a custom tax calendar and reserve strategy.
Final Thought: Taxes Shouldn’t Be a Surprise
The best way to avoid tax-time stress is to treat taxes like any other business expense, predictable, planned for, and built into your pricing and cash flow strategy. Whether you’re just starting out or scaling up, I’m here to help you build a system that works.