Sole Proprietorship vs. Corporation: How Taxes Work in Canada
Over 2.6 million people are self-employed in Canada and close to half of them (46.2%) run unincorporated businesses, according to Statistics Canada. For many small business owners, there’s a big decision to be made: whether to operate as a sole proprietor or incorporate. On one hand, a sole proprietorship is easy to establish, since it’s not set up as its own legal entity. On the other, incorporating your business separates your personal and company finances. While this can reduce your liability and risk, it also impacts how you file your taxes. These are all important factors to consider when choosing your business structure. In this guide, we’ll compare sole proprietors vs. corporations and break down their unique tax obligations so you can maximize your profits and file with ease. What is a sole proprietorship? First, let’s clarify what a sole proprietorship is. A sole proprietorship is an unincorporated business that is not considered separate from its owner; meaning, the owner and the business are treated as one entity for legal and tax purposes. Sole proprietors can operate their business under their own name or a registered business name. For instance, say Mireya Díaz is a sole proprietor who runs her own graphic design company. She can invoice her clients as Mireya Díaz or she can register Díaz Designs as her business name and use that on her financial documents. Key tax requirements for sole proprietors As unincorporated business owners, sole proprietors have distinct requirements for reporting business income. Here’s a closer look at what sole proprietors need to file their taxes: How sole proprietor tax payments are made As business owners, sole proprietors are responsible for paying taxes on their own income; since they’re not employees, they don’t rely on a company to take taxes out of their paycheque. So they have to handle this process themselves. To do this, sole proprietors who pass a certain income threshhold pay their income taxes in instalments throughout the year. These are the deadlines: If any of these due dates fall on a Saturday, Sunday, or statutory holiday, sole proprietors can make their instalment payments by the next business day. If sole proprietors still owe any taxes after the tax year ends, they must pay the balance by April 30 — meaning, before the June 15 tax filing deadline. Tax deductions available for sole proprietors Sole proprietors can deduct certain business expenses from their income, reducing their tax burden. For example, some common expenses for sole proprietors include: The cost of certain depreciable expenses — like furniture, property, vehicles, and equipment — is deducted over time instead of all at once. This is done using capital cost allowance (CCA), a tax deduction used specifically for business asset depreciation. What is a corporation? A corporation or incorporated business is a separate legal entity that operates independently from its owner or owners. That means its taxes are filed separately from any owners’ and shareholders’ taxes. That also means business owners take on less risk, since they don’t personally share the corporation’s profits and losses. Instead, owners can pay themselves a salary or through dividends from after-tax profits. There are also different types of corporations, including: Key tax requirements for incorporated businesses Incorporated businesses file their taxes differently than sole proprietors do. Here’s a closer look at the specifics: How corporate income taxes are paid Corporations typically pay their income tax in monthly or quarterly instalments throughout the year. Each corporation’s tax payment schedule will be based on its fiscal year. You can find your instalment due dates in the “Calculate and pay instalment payments” section of your My Business Account page. If a corporation has any balance due at the end of the fiscal year, they have to pay it within 2 months. However, certain CCPCs have 3 months to pay their balance due. Tax deductions available for incorporated businesses Just like sole proprietors, corporations can deduct business expenses from their taxable income. Common expenses for corporations include: Tax differences between sole proprietorship and corporation Need a quick breakdown of the tax requirements for sole proprietors and incorporated business owners? This chart can help: Sole proprietorship Corporation Tax forms T1 Income Tax Return T2 Corporation Income Tax Return or T2 Short Return Tax year January 1 to December 31 Fiscal year can vary for each business Tax rate Federal and provincial tax rates for the year Basic rate of 38% but can be reduced to as much as 15%; small business deduction reduces rate to 9% on the first $500,000 of active business income Filing due date June 15 Six months after the end of the fiscal year Payment due dates Instalments due March 15, June 15, September 15, and December 15; balance owed is due by April 30 Generally, monthly or quarterly instalments throughout the year, 2 months after the end of the fiscal year for any balance owed What is a GST/HST return? Most businesses have to register for a GST/HST account once they surpass $30,000 in sales within a certain period. They also need to register for a 9-digit CRA business number to charge and report GST/HST. The GST/HST account is used to collect and report sales taxes that you charge your customers, specifically, the Goods and Services Tax (GST) and Harmonized Sales Tax (HST). For example, say you sell a book for $15 to a customer in Alberta. The GST tax rate of 5% will be added to that purchase, costing the customer a total of $15.75. If you collect GST/HST from customers, you have to report it by submitting a GST/HST return monthly, quarterly, or annually, depending on your business type. Can you claim a business loss on personal taxes? For corporations, certain business losses can be carried back 3 years and forward 20 years on personal taxes. Generally, this applies to non-capital losses, which occur when your expenses are more than your income for the year. You can use non-capital losses to offset income on your personal tax return. For example, if your corporation operated at a $20,000 loss last year, but this year you earned $30,000 in taxable income. You
Avoid tax season surprises by keeping your CRA account up to date!
Keeping your CRA account up to date is one of the simplest ways to prevent delays, avoid disruptions, and make tax season run smoothly. Ensuring your personal information is accurate and that you can access your account when you need it will save you time and frustration. Make sure you can access your CRA account Confirming you can sign in to your CRA account is an easy but important step to take before tax season (online filing) begins on February 23, 2026. If you have forgotten your sign-in information or the answers to your security questions, you can now self-serve and regain access by completing the online registration process again. If you still can’t sign in, you can contact us by phone and a service representative will help you get back into your account. Call volumes increase significantly once tax season starts, so it’s best to reach out now if you need help with regaining access to your account. Enroll in a backup multi-factor authentication (MFA) option Starting in February 2026, the CRA will require CRA account users to have a backup MFA option on file. This means, when you sign in to your CRA account you will be prompted to add a backup MFA option before you’re able to access your account. You can choose between a passcode grid or a third-party authenticator app. Telephone will not be an available backup MFA option, although users can continue to use MFA by phone as their primary MFA option. To save yourself time during tax season, add a backup MFA option to your account today by following these instructions: This new requirement is one of the ways the CRA is improving account security while also prioritizing a taxpayers’ ability to self-serve. Having a backup MFA option on file will help prevent future account lockouts caused by lost or forgotten MFA information, reducing the need to call the CRA contact centres during the busiest season. Keep your personal information up to date Updating your personal information helps you avoid issues during tax season and ensures you continue to get the benefit and credit payments you’re eligible for. If you’ve moved, changed your marital status, or got a new phone number, be sure to update your CRA account with these details before filing your tax return. The good news is that you can make all these changes in your CRA account on your own without calling. For instructions on how to update personal information within your CRA account visit: For additional tasks, check out how to Skip the line so you can see whether there is a faster and easier digital service for the task you want to complete. Following these steps can help you file your taxes with ease starting February 23 2026. Getting a head start now can help you avoid having to call during our busiest time of year. Don’t wait, get started by signing in to your CRA account today! SOURCE Desmarais, G. (n.d.). Avoid tax season surprises by keeping your CRA account up to date!. Canadian Bookkeepers Association.
Avoid Fraud and Identity Theft in the Digital Age with These Helpful Tips from CPA Canada
New survey released for Fraud Prevention Month finds Canadians need to protect themselves and their personal information TORONTO, Feb. 27, 2020 /CNW/ – Many Canadians are using unsafe and outdated techniques to protect themselves and their personal data online, with 34 per cent having personally experienced fraud, according to national survey conducted by the Chartered Professional Accountants of Canada (CPA Canada). CPA Canada’s annual fraud survey (2020) makes clear it is becoming increasingly vital to understand how to stay safe online as nearly three quarters of Canadians buy from web-based retailers (74 per cent) and conduct their banking online (74 per cent). In addition, more than two thirds share their lives on social media (70 per cent). “March is Fraud Prevention Month in Canada and it provides a great opportunity for Canadians to assess how effectively they are protecting themselves online,” says Doretta Thompson, CPA Canada’s Financial Literacy Leader. “With more of our daily activities going online, the ability of fraudsters to take advantage of unsuspecting Canadians increases. Devices such as smart locks, home security cameras, laptops and even smart TVs can be infiltrated and compromised with access to the right information.” Password protection remains a top vulnerability when it comes to keeping Canadians’ personal information secure. Among those surveyed, 60 per cent of Canadians choose to simply memorize some of their passwords, potentially leading to repetitive use of the same information which reduces security. Survey Methodology Nielsen conducted the CPA Canada 2020 Annual Fraud Survey via an online questionnaire, from January 24 to February 5, 2020, with 2,013 randomly selected Canadian adults, aged 18 years and over, who are members of their online panel. A background document can be found online at: cpacanada.ca/fraud2020. About CPA Canada Chartered Professional Accountants of Canada (CPA Canada) represents the Canadian accounting profession, both nationally and internationally. Operating in the highly complex and global accounting eco-system, CPA Canada is a convener, facilitator, contributor and disseminator of information that advances the profession. The organization works closely with the provincial, territorial and Bermudan CPA bodies to champion best practices that benefit business and society. With more than 217,000 members, CPA Canada is one of the largest national accounting bodies in the world. The organization supports the setting of accounting, auditing and assurance standards, advocates for economic and social development in the public interest, and develops leading-edge thought leadership, research, guidance and educational programs. To learn more, visit cpacanada.ca. SOURCE CPA Canada Canada, C. (2020, February 27). Avoid fraud and identity theft in the digital age with these helpful tips from CPA Canada. Cision Canada.
