Starting a small business in Canada is an exciting journey—but knowing your tax obligations is essential for long-term success. A common question new entrepreneurs ask is: "At what point does my small business have to start paying taxes?" The answer depends on several key factors, including your business structure, income level, and the province you operate in.
Let’s break it down so you can make informed financial decisions from the start.
Why Business Structure Matters
Your legal business structure directly impacts when and how you pay taxes in Canada. Most small businesses fall into one of three categories: sole proprietorship, partnership, or corporation.
- Sole Proprietorships and Partnerships: These types of businesses report income through the owner’s personal tax return. There’s no specific tax-free threshold for business income itself, but the federal basic personal amount (BPA)—set at $15,705 for 2024—means you won’t owe federal income tax until your total income (including business and other income) exceeds that amount.
- Incorporated Businesses: If your business is incorporated, it is treated as a separate legal entity. Unlike sole proprietorships, corporations pay tax on every dollar of profit, even if it's only $1. That makes it crucial to understand corporate tax rules from day one.
If you’re unsure how to handle your income or deductions, it’s a smart move to consult a trusted small business tax accountant in Toronto or your local area.
Understanding the Basic Personal Amount (BPA)
The Basic Personal Amount is the portion of income every Canadian can earn before paying federal income tax. For 2024, the BPA is $15,705, although provincial amounts differ slightly.
If you operate as a sole proprietor, you can earn up to the BPA before owing federal tax. However, this applies to total income, not just business earnings—so any employment, investment, or rental income also counts toward that threshold.
GST/HST: What You Need to Know
Beyond income taxes, small businesses also need to consider GST/HST obligations. If your gross revenues exceed $30,000 in any 12-month period, you must register for a GST/HST number and begin charging the appropriate sales tax.
Even if you’re below the threshold, voluntary registration can be beneficial—it allows you to claim Input Tax Credits (ITCs) on business-related purchases, potentially improving your cash flow.
Incorporated Small Businesses and Tax Rates
For incorporated small businesses, tax liability begins immediately. However, many Canadian-Controlled Private Corporations (CCPCs) are eligible for the Small Business Deduction (SBD), which reduces the tax rate on the first $500,000 of active business income to around 9–15%, depending on your province.
While this offers a major tax advantage, it also brings more complexity. Proper bookkeeping, strategic income timing, and expense tracking become even more important—this is where a professional accountant can provide significant value.
Tax Tips for Canadian Small Business Owners
- Keep accurate and organized records of income and expenses
- Monitor your revenue to stay on top of the $30,000 GST/HST threshold
- Consider incorporation as your income grows or for liability protection
- Work with a tax professional to claim all available deductions and credits
Bottom Line
Not sure when your small business will start owing taxes in Canada? Don’t leave it to chance. At Filing Taxes, our experienced Toronto small business tax accountants are here to help you stay compliant, maximize deductions, and make smart financial choices—whether you're just starting out or running a thriving business.
Book a Consultation Today
Let Filing Taxes –Toronto Tax Professional help you prepare better for next the 2026 tax season with ease. Connect with Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step toward proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.