Tax Considerations for New Businesses

Why Early Tax Planning Matters

Starting a business is exciting, but waiting until year-end to think about taxes can lead to surprises: unexpected bills, missed deductions, or penalties. Laying a solid tax foundation from day one ensures you keep more of your hard-earned profits and stay compliant with federal and provincial regulations.

1. Choosing the Right Business Structure

Your legal structure impacts which taxes you pay and when:

• Sole Proprietorship

  • Owner reports business income on personal T1 return (limited tax planning options)

  • Simpler filings, but unlimited personal liability

• Corporation

  • Pays corporate tax rates; owners pay tax on salary/dividends (funds withdrawn from the corporation and used personally - tax planning opportunities)

  • Access to Small Business Deduction (11% federal rate on first $500K taxable income)

  • More paperwork and separate tax deadlines

Choosing the right option depends on your risk tolerance, profit projections, and growth plans. Consult a CPA to model after-tax cash flow for each scenario.

2. Registering for Taxes and Licences

Before you invoice clients or make sales, register for:

• Business Number (BN) with the CRA

• GST/HST Account if annual revenue exceeds $30,000

• Provincial PST in BC if you sell goods or taxable services within British Columbia

• Payroll Account if you hire employees or pay yourself a salary

Registering early prevents late-registration penalties and allows you to collect input tax credits on expenses from day one.

3. Maximizing Deductions and Credits

New businesses can deduct startup and operating costs, reducing taxable income including the following examples:

• Pre-startup Costs: Legal fees, market research, travel for pitches

• Office & Home Office: Rent, utilities, property taxes, maintenance

• Equipment & Software: Computers, printers, cloud subscriptions

• Vehicle & Travel: Mileage, parking, accommodations (strict records)

• Professional Services: Accounting, legal, consulting fees

Tracking every dollar from day one ensures you don’t leave money on the table and have the proper backup if a CRA audit arises.

4. Payroll and Employee-Related Taxes

If you hire staff (or pay yourself a salary), you must:

• Withhold CPP, EI (shareholders are EI exempt), and income tax on each paycheque

• Remit deductions to CRA on a regular schedule

• Prepare and issue T4 slips each February

Missing remittance deadlines triggers interest and penalties—set up automated payroll through a cloud accounting system to stay on track.

5. Record-Keeping Best Practices

Accurate, organized records protect you in an audit and simplify tax filings:

• Use a cloud-based accounting platform (e.g., QuickBooks Online, Xero)

• Scan and categorize all receipts within 30 days

• Reconcile bank and credit-card statements monthly

• Keep a detailed vehicle log and vehicle receipts if claiming business use of vehicle

• Retain records for six years from the end of the tax year

Well-maintained books highlight cash-flow issues early and support real-time decision-making.

6. Filing Deadlines and Instalments

Stay on top of key dates to avoid penalties:

• Personal Owners/Sole Proprietors

  • File April 30 (June 15 for self-employed); pay any balance owing by April 30 to avoid interest

  • Quarterly instalments if tax owing > $3,000 last year

• Corporations

  • File within six months of fiscal year-end

  • Pay taxes within two months (three months for eligible CCPCs)

  • Instalments due monthly or quarterly based on prior-year liability

Mark your calendar or automate reminders in your accounting system.

7. Working with a CPA

A qualified CPA can:

• Structure your business for optimal tax efficiency

• Identify industry-specific deductions you might miss

• Forecast quarterly instalment requirements

• Liaise with CRA on your behalf during audits or objections

Engaging a CPA early often pays for itself in tax savings and peace of mind.

Conclusion & Next Steps

Solid tax planning empowers your new business to grow without surprises. Here’s what to do now:

1. Choose your business structure and register for the necessary CRA accounts.

2. Set up cloud-based accounting and begin tracking every expense.

3. Consult a local CPA to review your plan and handle ongoing compliance.

Ready to get started? Schedule your free consultation and take the guesswork out of taxes.