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Starting a Business in Canada: The Financial Side

Updated

Starting a business means setting up its finances: a legal structure, registrations, a bank account, bookkeeping, and a plan for tax. This page walks through those steps in order and links to the detailed guide for each. It’s part of the self-employed tax hub.

1. Choose a structure

StructureHow it’s taxedLiability
Sole proprietorshipBusiness profit is added to your personal incomeYou’re personally responsible for business debts
PartnershipEach partner reports their share of profit personallyGeneral partners are personally responsible
CorporationThe corporation files its own return; you pay personal tax on salary or dividends you take outGenerally limited to the corporation’s assets

The small business deduction, which brings the federal rate down to 9%, is available only to a corporation that was a Canadian-controlled private corporation (CCPC) throughout the year, and only on active business income carried on in Canada up to a $500,000 business limit that associated corporations share; the limit shrinks when the group's passive investment income is over $50,000 (reaching zero at $150,000) or its taxable capital is over $10 million. The provincial rate is added (Canada Revenue Agency). That lower rate matters most when profit is left in the company; self-employed vs incorporated compares the two in detail, and business structures covers partnerships.

2. Register

  • Business name: a sole proprietorship operating under a name other than your own usually registers it with the province. Corporations incorporate provincially or federally (through Corporations Canada), and each charges a filing fee.
  • Business Number: the CRA’s identifier for your business; you add program accounts to it for GST/HST, payroll and, for corporations, corporate income tax. Registering is free.
  • GST/HST: You have to register for the GST/HST once you make taxable sales in Canada and are no longer a small supplier: that happens when your taxable sales go over $30,000 in a single calendar quarter (register from that sale) or over the last 4 consecutive calendar quarters (by the end of the month after that quarter); below that you can register voluntarily. Voluntary registration below that lets you claim input tax credits. See GST/HST on freelance income.
  • Payroll: a payroll account is needed before you pay employees.
  • Municipal licence: many cities require a business licence for some or all businesses; check with your municipality.

3. Set up banking and bookkeeping

A separate business bank account keeps business income and expenses apart from personal ones, which makes bookkeeping and tax filing simpler. Accounting software tracks income, expenses and GST/HST; Wave, QuickBooks, FreshBooks and Xero are compared there.

The CRA says to keep your records for six years from the end of the last tax year they relate to (unless it lets you destroy them earlier), at your Canadian residence or place of business unless it allows another place; you are responsible for them even when a bookkeeper or accountant keeps them, and you must make them available to the CRA on request.

4. Fund the business

Most small businesses start with owner savings, then a small business loan, line of credit or business credit card. Government support is mostly for specific activities such as research or exporting; see small business grants and funding.

5. Understand the taxes

  • Sole proprietors report business income on form T2125 with their personal return; see T2125 explained and first-time self-employed taxes. Tax isn’t withheld, so instalments may be required, and self-employed people pay both halves of CPP contributions.
  • Deductions: reasonable business expenses are deductible, with limits on some items. A business can deduct at most 50% of the lesser of what it spent on food, beverages and entertainment and an amount that is reasonable in the circumstances, including meals while travelling or at a convention. The limit doesn't apply in some cases, such as costs billed to a client and shown on the bill, a business that sells food or entertainment to customers, and up to six office parties a year open to all employees at a location; long-haul truck drivers can deduct 80% of eligible meals. See small business tax deductions.
  • Corporations file a T2 return, and owners choose how to pay themselves. Salary creates RRSP room and CPP contributions; dividends do neither. See salary vs dividend.

6. Insurance

Common coverage includes general liability, professional liability for advice-based work, and property coverage for equipment and inventory. Provincial workers’ compensation rules apply once you have employees. See the business insurance guide.

7. Plan for retirement

Business owners usually have no employer pension, so retirement savings come from RRSPs (based on earned income, including salary from your corporation), TFSAs, investments held in a corporation, and for some incorporated owners an individual pension plan. See retirement planning for small business owners.

Sources

The figures and rules on this page come from these sources, last checked against them on October 1, 2026. How we check facts.