Tax Filing for Small Business Owners in Canada: What You Need to Know

If you’re running a small business in Canada, whether it’s a physical storefront, an online shop, or a freelance service, you are required to file taxes every year. This includes business owners of all types—brick-and-mortar shops, online sellers, freelancers, consultants, ride-share drivers, contract workers and even those selling products at markets or fairs.

No matter the structure of your business, if you’re earning income by offering a product or service, you must file taxes. However, how you go about this will vary depending on how your business is set up.

Sole Proprietorship

Many small businesses are set up as sole proprietorships, where you operate the business on your own and are not incorporated. If your business is a sole proprietorship, you'll report business income and expenses as part of your personal tax return using the T2125 Statement of Business Activities. This form helps you track the money you made and the costs you incurred, and the net profit (or loss) will be added or subtracted from your personal income.

Partnership

If you run a business with a partner, your business is considered a partnership. Like sole proprietors, partners must file a T2125 form with their personal tax returns. However, additional information is required to ensure the income and expenses are properly divided and reported.

Corporation

For those who have incorporated their business, a separate tax return is necessary. This is called the T2 Corporate Tax Return. Your personal income will still be filed on your personal return, but all business-related income, expenses, and credits will be filed through the T2.

No matter how your business is structured, keeping accurate records is essential. This will make tax filing easier and ensure you don't miss any valuable deductions. The details you'll need to file your return include:

• Business name

• Business address

• Industry code

• Partner or co-owner information (if applicable)

• Fiscal year (typically January to December)

• Income received, including any GST/HST collected

• Discounts you’ve provided

• Subcontractor payments

• Business expenses

When it comes to business expenses, if you’re unsure whether something qualifies, keep the receipt and consult with your accountant. Properly documenting eligible expenses can help reduce the amount of taxes you owe.

Filing your tax return is typically a straightforward process. If you’re using accounting software, it may handle this for you. If not, you can file online through your province/territory or directly with the CRA. Online services will provide the necessary forms and due dates. For more guidance, the CRA website is a valuable resource.