Maintaining Business Books & Filing Business Income Taxes

Written by: Josh Buchanan, Magnaltus Consulting

Once a business is up and running, it is important to give proper time and attention to record keeping and filing income tax returns. Many business owners neglect this aspect of the business, either because they prioritize other functions in the business too much, because they don’t like paperwork and numbers, or they simply were never taught how to do it properly and find bookkeeping and income taxes intimidating and overwhelming.

It’s vital for all business owners to learn the basics when it comes to bookkeeping, general record keeping, and income tax filing. Good record keeping isn’t just about regulatory compliance, there are many other benefits that come from good record keeping such as:

Easier to analyze the financial performance of the business

Easier to apply for business loans and credit accounts with lenders

Can make the business easier to sell

Makes filing taxes faster and easier

Ensures that sales tax is collected and any GST input credits are claimed

Easier access to refer to old records if customers need documentation

Easier to investigate past transactions and client relationships

Staying on top of bookkeeping and income tax filing comes down to building good habits, using the appropriate tools, and developing the proper knowledge around these tasks. Starting out, business owners can work with professional service providers, such as bookkeepers and accountants to help get set up properly with bookkeeping and prepare for future income tax filing.

There are many different forms of software available to make record keeping and bookkeeping easier. The software can be as simple as Google Sheets or Microsoft Excel spreadsheets for businesses with lower transaction volumes. For businesses with higher transaction volumes or more unique bookkeeping needs, specialty software like Quickbooks, Xero, Freshbooks, or Sage can be utilized. Many industries also have industry-specific Customer Relationship Management (CRM) software that include billing, payment collection, and bookkeeping features.

In addition to simply tracking transactions such as business revenue and expenses, it is also important to track items like depreciation and amortization of business assets. Depreciation and amortization are classified as business expenses that can be reported on taxes, despite no money being exchanged.

In terms of record keeping, the CRA requires businesses to keep all business records and supporting documents for a period of six years from the end of the last tax year they relate to. These records include items such as: sales invoices, cash register tapes, receipts, bank deposit slips, fee statements, and contracts.

For purchases made by a business, receipts should include key information such as: the date of the purchase, the name and address of the seller, the name of the buyer, a description of the goods and services purchased, and the GST number of the seller if they are a GST registrant.

For filing income tax, unincorporated businesses report business activity on the personal tax return of the owner. The personal tax return form is called a T1 tax return and the business activity or self-employment earnings and expenses can be reported on form T2125. The personal tax rate of the business owner is applied to the net income from business activity. Net income from business activity is the difference between the revenue generated and the expenses incurred for business activity. Filing a personal tax return with business activity is completely separate from filing GST and PST.

Personal income tax returns must be filed once per year, with the default fiscal (tax) year being January 1 until December 31. Tax returns must be filed by mid June of the following year, but payment for any income tax payable must be submitted by April 15.

In the case of corporations, a separate T2 tax return must be filed. A T2 tax return is significantly different from a personal T1 tax return and is generally filed by a Chartered Professional Accountant (CPA). Owners of corporations must file a T2 for the corporation in addition to a T1 for their own personal taxes.

Corporations have the option to choose a different fiscal (tax) year than the standard January 1st to December 31st year. The first fiscal year can be chosen upon the first filing on a T2 tax return. However, the end of the first fiscal year must be within 53 weeks from the date the business was originally incorporated.

For most corporations, income tax balances must be paid within two months of fiscal year end. However, if certain criteria is met, the CRA extends this to three months. Although payment of any income tax outstanding is due within 2-3 months of the fiscal year end, the actual T2 tax return can be filed up to six months after the corporation’s fiscal year end.

Corporations are also subject to different tax rates than personal tax rates. As of 2025, Saskatchewan and federal combined corporate tax rates are as low as 10%, or as high as 27%, depending on the size and structure of the business. Personal tax rates can range from 25.5% to 47.5% in Saskatchewan when combining federal and provincial tax rates.

Bookkeeping and taxes can be daunting. Canada’s tax regulations can be complicated, hard to navigate, and can be highly nuanced for each business. Getting guidance from professionals, making a point of learning about tax and bookkeeping, utilizing appropriate tools and software, and developing good habits early on in the business, are some key ways to ensure you stay on top of bookkeeping and tax filing for your business.

Sources:

Corporation Fiscal Year Information – https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/corporation-income-tax-return/when-file-your-corporation-income-tax-return/determining-your-corporation-s-tax-year.html

Personal Income Tax Due Dates and Deadlines – https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/important-dates-individuals.html

General Income Tax Information – https://www.canada.ca/en/services/taxes/income-tax.html

Form T2125 – https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/completing-form-t2125.html

T1 Tax Information – https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years/general-income-tax-benefit-package.html

T2 Corporate Tax Information – https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4012.html

Corporate Tax Information – https://www.canada.ca/en/services/taxes/income-tax/corporation-income-tax.html

Corporation Tax Rates – https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/corporation-tax-rates.html

Personal Income Tax Rates – https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/canadian-income-tax-rates-individuals-current-previous-years.html

Corporate Tax Payment Due Dates – https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/corporation-payments.html

Corporate Tax Filing Due Dates – https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/corporation-income-tax-return/when-file-your-corporation-income-tax-return.html