Question 1

How much tax does a small business pay in Ontario?

Accepted Answer

A Canadian-controlled private corporation pays a combined federal-Ontario small business rate of roughly 12.2% on the first $500,000 of active business income. Above $500,000, the general rate is closer to 26.5%. Personal marginal rates in Ontario top out around 53.5%. The gap between the corporate small-business rate and top personal rates is why so much tax planning centres on how — and when — money leaves the corporation.

Question 2

When do I need to make CRA tax instalment payments?

Accepted Answer

You generally need to pay corporate tax by instalment if your net tax owing was more than $3,000 in the current or prior year. Instalments are due monthly (or quarterly for eligible CCPCs) based on the prior year's tax or a current-year estimate. Personal instalments follow a similar rule at $3,000 of net tax owing. Missing instalments creates non-deductible interest — a small planning conversation prevents it.

Question 3

What's the difference between a tax deduction and a tax credit?

Accepted Answer

A deduction reduces the income you pay tax on — its value depends on your marginal tax rate. A $1,000 deduction saves you $535 at a 53.5% marginal rate but only $200 at a 20% rate. A tax credit is applied directly against tax owing — a $1,000 non-refundable credit at a 15% federal rate saves $150, no matter your bracket. Refundable credits (like the Canada Workers Benefit) pay out even if you owe no tax.

Question 4

How do I reduce my taxes at year end in Ontario?

Accepted Answer

The biggest year-end levers for incorporated owners are: setting the right salary-dividend mix, paying bonuses to reduce corporate income above the small business limit, prepaying deductible expenses, purchasing capital assets before year-end to claim CCA, maximizing RRSP room, and topping up TFSA and RESP. For unincorporated businesses, the same expense timing and RRSP levers still apply.

Question 5

Can I deduct my home office if I work from home?

Accepted Answer

Yes, if a portion of your home is used regularly and exclusively for business, or you meet clients there. You can deduct a proportional share (usually based on square footage) of utilities, internet, property tax, mortgage interest, and repairs. Employees have a stricter set of rules than self-employed people. Keep receipts and a simple floor-plan calculation on file.

Question 6

Can I deduct my vehicle if I use it for business?

Accepted Answer

Yes, but only the business-use portion. Keep a logbook (a simple app is fine) recording business kilometres versus total kilometres for the year. That ratio applies to fuel, insurance, maintenance, licence, and lease payments or CCA. Commuting from home to a regular office does not count as business use. Poor records are the most common reason vehicle deductions get denied.

Question 7

What is the difference between a sole proprietorship and a corporation in Ontario?

Accepted Answer

A sole proprietorship is you and the business — same person for tax and legal purposes, income taxed at your personal rate. A corporation is a separate legal entity with its own tax return, small business tax rate on the first $500,000 of active income, limited liability, and the ability to defer tax by keeping earnings inside the company. Corporations cost more to run and require separate bookkeeping and a T2 return.

Question 8

What is a holding company and do I need one?

Accepted Answer

A holding company owns shares in your operating company (and sometimes investments or real estate). It's useful for creditor protection — moving excess cash out of the operating company via tax-free intercorporate dividends — and for succession or estate planning. Not everyone needs one. It usually starts making sense once you have meaningful retained earnings you don't need personally.

Question 9

Can I pay my spouse through my business?

Accepted Answer

Yes, provided your spouse actually performs work for the business and the pay is reasonable for the work done. Reasonable salary is deductible to the corporation and taxed in your spouse's hands — often at a lower marginal rate, saving overall family tax. Dividends to a spouse are usually caught by the Tax on Split Income (TOSI) rules unless specific exclusions apply. Get advice before setting this up.

Question 10

When does it make sense to incorporate in Ontario?

Accepted Answer

Incorporation typically pays off when your business consistently earns more than you personally need — often around $80,000–$100,000 of net income for many owners — and you want to defer tax on retained earnings, or when you need liability protection or the flexibility of family income splitting. Below that, the cost and administrative burden may outweigh the benefit.

Question 11

How long do I need to keep business records in Canada?

Accepted Answer

CRA requires you to keep books, records, and supporting documents for six years from the end of the last tax year they relate to. For corporations, records must be kept at your Canadian business address. Digital copies are acceptable if clearly readable. Some documents — corporate minute books, share registers — should be kept for the life of the corporation.

Question 12

What happens if I register for HST late?

Accepted Answer

You're still liable for HST on all taxable sales from the date you should have registered — even if you didn't collect it from customers. CRA can assess back-HST plus interest and penalties. The fix is to register as soon as you realize, back-date if required, and file the missing returns. It's usually cheaper to correct proactively than to be reassessed later.

Question 13

What bookkeeping software do you recommend for small businesses in Ontario?

Accepted Answer

QuickBooks Online and Xero are the two strongest choices for most Ontario incorporated small businesses. QuickBooks has broader local bookkeeper support; Xero is cleaner and often preferred by tech-forward owners. Wave is a decent free option for simple sole proprietors. The software matters less than the chart of accounts, HST setup, and monthly reconciliation discipline.

Question 14

What is the difference between HST owing and HST collected?

Accepted Answer

HST collected is the tax you charge customers on taxable sales. HST owing (the net remittance to CRA) is HST collected minus the Input Tax Credits you can claim on HST paid on business expenses. If ITCs exceed HST collected, you're in a refund position. Confusing the two is one of the most common bookkeeping errors — and one of the most expensive to unwind.

Question 15

What is a good cash flow margin for a small business?

Accepted Answer

A healthy operating cash flow margin (operating cash flow divided by revenue) is typically 10–15% for service businesses and 5–10% for product businesses, but industry benchmarks vary. More important than a single number is the trend — cash flow margin should be stable or improving, and cash on hand should cover at least three months of operating expenses.

Question 16

How do I improve my cash flow as a small business owner?

Accepted Answer

The fastest levers are usually receivables (invoice sooner, shorter payment terms, deposits on larger jobs, follow up faster), payables (negotiate longer terms without damaging supplier relationships), inventory (reduce slow-moving stock), and pricing (small price increases go straight to cash). A 13-week rolling cash flow forecast makes each of these visible.

Question 17

What does accounts receivable mean and why does it affect my cash?

Accepted Answer

Accounts receivable (AR) is money customers owe you for work already invoiced. Your P&L records the sale when you invoice, but cash only arrives when the customer pays. Growing AR balances mean you're financing your customers — you've done the work, paid your costs, and are waiting for the money. High or aging AR is the number-one reason profitable businesses run out of cash.

Question 18

Should I buy or lease equipment for my business?

Accepted Answer

Financially, it depends on the equipment's useful life, financing rates, and your cash position. Buying builds an asset and allows CCA deductions over time; leasing is fully deductible as a lease payment and preserves cash. For rapidly-obsolete equipment (some tech, vehicles), leasing often wins. For long-lived assets you'd hold anyway, buying usually does. Run both scenarios before deciding.

Question 19

How is a small business valued in Canada?

Accepted Answer

Small businesses are usually valued using one of three approaches: earnings-based (a multiple of normalized EBITDA or seller's discretionary earnings — commonly 2–5x for many small businesses, higher for recurring-revenue models), asset-based (fair market value of assets minus liabilities), or market comparables. Real-world valuations combine all three and adjust for owner-dependence, customer concentration, and growth trend.

Question 20

What is the Lifetime Capital Gains Exemption (LCGE) in Canada?

Accepted Answer

The LCGE lets an individual shelter capital gains on the sale of qualified small business corporation shares (up to roughly $1.25M in 2024, indexed). To qualify, the shares must meet asset-use, holding-period, and Canadian-controlled tests. Multiplied across family shareholders through proper share structuring, the LCGE can shelter several million dollars of gain on a sale — but the structure has to be in place well before the sale.

Question 21

How do I sell my business in Ontario and minimize tax?

Accepted Answer

The two main routes are a share sale (buyer buys the shares of the corporation — usually more tax-efficient for the seller, potentially qualifying for the LCGE) or an asset sale (buyer buys specific assets — usually more tax-efficient for the buyer). Structure, timing, and pre-sale tax planning matter enormously; the difference between a well-planned and poorly-planned exit can be six or seven figures on a mid-sized deal.

Question 22

What retirement savings options do self-employed people have in Canada?

Accepted Answer

The main options are: RRSP (up to 18% of earned income, capped annually), TFSA (annual contribution room, tax-free growth and withdrawals), leaving retained earnings inside your corporation as a de facto pension, and — for higher earners — an Individual Pension Plan (IPP). Corporate-owned life insurance is also used for tax-sheltered growth in some cases. The right mix depends on your income, corporation, and time horizon.

Question 23

How much does a small business CPA cost in Ontario?

Accepted Answer

A basic T2 corporate tax return typically runs $1,500–$3,000. Ongoing advisory with monthly bookkeeping and quarterly reviews ranges from $500 to $2,500 per month depending on complexity. Everything at DVO Financial is priced flat — no hourly surprises.

Question 24

Do you work with clients outside Guelph?

Accepted Answer

Yes. All work is done remotely — video calls, secure document sharing, cloud accounting. Clients range from Windsor to Ottawa, Muskoka to Niagara.

Question 25

How do we get started?

Accepted Answer

Book a free 30-minute call. We talk through your situation, I answer your questions, and if it's a fit we agree on scope and a flat fee. If it's not a fit, no hard sell.

Answers Ontario small business owners ask for most.

Tax planning

Business structure

Bookkeeping and compliance

Cash flow

Growth and exit

Working with a CPA

Still have questions?

Written and reviewed by Devin O'Brien, CPA, CMA