Corporate Tax Instalments: When Your Corporation Pays Monthly or Quarterly

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Corporate Tax Instalments: When Your Corporation Pays Monthly or Quarterly

Targeted Accounting

Why the CRA Wants Your Tax Before the Year Is Over

In your first profitable year, corporate tax is a single bill that arrives after year-end. From the second year on, the CRA expects to be paid as you go. If your corporation’s tax bill is large enough, you must make instalments during the year, and if you do not, interest and potentially a penalty are added automatically when the return is assessed.

Instalments are the part of corporate tax most often mishandled by growing businesses, not because the rules are complex but because nobody tells you they have started. This article covers who must pay, how often, how much, and what happens when you miss one. It sits alongside our founder’s guide to T2 corporate tax.

Who Has to Pay Corporate Tax Instalments

The trigger is simple. If your corporation’s total federal and provincial tax payable was more than $3,000 either this year or last year, you are expected to pay instalments this year. Below that, you pay the whole balance at the balance-due date and nothing during the year.

A corporation in its first fiscal year has no previous year to base instalments on and is not required to pay them; the first bill is the balance after year-end. The obligation begins in year two, based on the year-one assessment. That is the point where most founders are surprised, because the first instalment can be due within months of paying the first year’s balance.

Quarterly or Monthly Instalments

The default is monthly. A Canadian-controlled private corporation can pay quarterly instead if, for the current or previous year, it claimed the small business deduction, had taxable income of $500,000 or less together with any associated corporations, had taxable capital of $10 million or less, and has a perfect compliance history: every return filed and every payment made on time over the previous twelve months.

That last condition is the one small businesses lose. One late GST/HST return or one late payroll remittance in the past year and the corporation drops to monthly instalments for the following year. The money is the same; the number of payments is not, and each one is a chance to forget.

Quarterly instalments are due on the last day of each quarter of your fiscal year. Monthly instalments are due on the last day of each month. A 31 December year-end therefore has quarterly payments due 31 March, 30 June, 30 September and 31 December.

How Much to Pay: The Three Calculation Methods

The CRA gives you three ways to calculate the instalment and lets you choose the one that produces the lowest payments:

Current-year estimate. Estimate this year’s tax and divide it evenly. Lowest if profit is falling; risky if you underestimate, because interest is charged on the shortfall.
Previous-year method. Take last year’s tax and divide it evenly. The safe choice when profit is stable or rising: the CRA cannot charge instalment interest if you pay this amount on time, even if the current year turns out higher.
Two-year method. Base the first payments on the year before last, then true up using last year’s tax for the remaining payments. Useful when last year’s return is not yet filed when the first instalment is due.

The CRA sends instalment reminders showing the amounts under the previous-year method. They are reminders, not assessments; you can pay less if a current-year estimate justifies it, but you carry the interest risk.

A corporation whose tax was $12,000 last year and expects a similar year pays $3,000 a quarter. One that expects tax to fall to $6,000 can pay $1,500 a quarter, and pays interest only if the actual bill ends up higher than the instalments covered.

Instalment Interest and Penalties

If instalments are late or short, the CRA calculates instalment interest at its prescribed rate, currently in the high single digits, compounded daily from each due date to the balance-due date. It is calculated on the difference between what you paid and what you should have paid under the method that produces the lowest interest, so paying something is always better than paying nothing.

If instalment interest for the year exceeds $1,000, a penalty is added: 50% of the amount by which the interest exceeds the greater of $1,000 or a quarter of the interest that would have applied had you paid nothing. In plain terms, small shortfalls cost interest; large or total failures cost interest plus a penalty.

Interest paid to the CRA is not deductible. The corporation is effectively paying an after-tax loan rate well above what a bank would charge, which is why funding instalments from an operating line is usually cheaper than skipping them.

How to Pay and How to Plan

Pay through your bank’s business tax payment service by choosing the corporate tax instalment option, through the CRA’s My Business Account by pre-authorised debit, or by the online payment portal. Always quote the corporation’s business number with the RC0001 program account. Payments applied to the wrong account, most often the GST/HST account, are a recurring cause of “unpaid” instalments that were in fact paid.

The planning side is a habit. Set aside a percentage of monthly profit, typically 12% to 15% for a small Ontario CCPC, in a separate account, and pay the instalment from it on the last day of the quarter. Put the four dates in the same calendar as your GST/HST and payroll deadlines; our business tax calendar has them laid out. When the year-end balance arrives, the remainder is small and expected instead of large and alarming.

Finally, remember that instalments do not change the balance-due date. Whatever is left after your instalments is still due two months after year-end, or three for an eligible small CCPC, well before the T2 itself is filed.

Written by Targeted Accounting

CPA-led bookkeeping, payroll and outsourced CFO for Canadian businesses, with 10+ years of running and cleaning up small business books.

Not Sure Whether You Owe Instalments This Year?

We check your assessment, work out the lowest compliant instalment schedule, and set up the payments so they happen on the right dates from the right account. It is a fifteen-minute fix for a problem that otherwise costs interest every year.

Salary or Dividends? A Worked Example for a Canadian Owner-Manager

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Salary or Dividends? A Worked Example for a Canadian Owner-Manager

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Two Ways to Get Paid, One Set of Numbers

Every owner of a Canadian-controlled private corporation eventually asks the same question: should the company pay me a salary, or should I take dividends? The honest answer is that the tax system is designed so the two come out close, a principle called integration. But close is not identical, and the differences, in CPP, RRSP room, cash flow and flexibility, add up to real money over a working life.

Rather than repeat the theory, which is covered in our tax planning guide for owner-managers and the T2 corporate tax guide, this article works one realistic example through both options so you can see where the money goes. To try your own numbers, use our free salary vs dividend calculator for Ontario.

The Example: $150,000 of Profit, $80,000 Needed

Meet an owner-manager in Ontario. Her corporation earns $150,000 of profit before paying her anything, all of it eligible for the small business deduction. She needs $80,000 of cash in her pocket this year, after personal tax and CPP, and she has no other income.

Because her cash is fixed, the fair way to compare the options is to ask what each one leaves behind in the corporation. The figures use 2026 federal and Ontario rates. They also use a blended 11.70% small business rate for a calendar 2026 year, reflecting Ontario’s cut from 3.2% to 2.2% on July 1, 2026. Amounts are rounded to the nearest dollar and ignore credits she might claim elsewhere on her return.

Option A: All Salary

To leave her with $80,000 after tax and CPP, the corporation has to pay her a salary of about $107,100. As employer it also contributes about $4,650 in CPP. Both are deductible, so corporate taxable income falls to about $38,200, and the corporation pays roughly $4,500 of tax on it.

Personally, she pays about $22,500 of federal and Ontario income tax, including the Ontario Health Premium, plus her own $4,650 of CPP. The corporation is left with about $33,700 after tax.

In exchange for about $9,300 of combined CPP, she earns a full year of pensionable earnings. The salary also creates about $19,300 of RRSP room for next year.

Option B: All Dividends

With no salary to deduct, the corporation pays 11.70% on the full $150,000, roughly $17,550. To leave her with $80,000, it then declares a non-eligible dividend of about $90,200.

The dividend is grossed up by 15% on her return and reduced by the federal and Ontario dividend tax credits, so her personal tax comes to about $10,200. There is no CPP. The corporation is left with about $42,200.

No RRSP room is created, no CPP is earned, and no payroll account is needed during the year.

Salary vs Dividends Side by Side

	All salary	Salary to CPP maximum, then dividends	All dividends
Salary	$107,145	$74,600	$0
Dividends	$0	$28,364	$90,239
Corporate tax	$4,470	$8,327	$17,550
Personal income tax	$22,499	$18,733	$10,239
CPP, both halves	$9,293	$8,461	$0
Cash in her hands	$80,000	$80,000	$80,000
Left in the corporation	$33,738	$34,479	$42,211
Left in the corporation, plus CPP	$43,031	$42,940	$42,211
RRSP room created	$19,286	$13,428	$0

On this year’s numbers alone, dividends leave about $8,500 more in the corporation, and almost all of that gap is CPP. CPP is not a tax: it comes back as an indexed retirement pension. Count it as her own savings and the three options land within about $800 of each other, with all salary slightly ahead. That is integration doing its job.

The middle column is where most owners end up. It earns a full year of CPP and $13,400 of RRSP room, and leaves about $7,700 less in the company than all dividends.

Want to run this with your own profit and cash needs? Our salary vs dividend calculator does the same comparison for any amount, and previews the 2027 Ontario changes.

What Tips the Balance

RRSP room. If you want to contribute to an RRSP you need earned income, and dividends are not earned income. Salary up to the CPP maximum earnings, about $74,600 in 2026, is the usual compromise.

Child care and other deductions. Several personal deductions and benefits are calculated from earned income. A parent claiming child care expenses needs salary.

The passive income rules. Salary reduces corporate income, which matters if investment income inside the corporation is starting to erode the small business deduction.

Cash flow and admin. Salary means monthly payroll remittances, T4s and a payroll account, all covered in our payroll handbook. Dividends mean a director’s resolution and a T5 in February.

Other shareholders. Dividends go to all holders of a share class in proportion. Paying a spouse dividends can trigger the tax on split income rules unless an exclusion applies.

Mortgage and loan applications. Lenders read T4 salary more easily than dividends, although most now accept both with two years of history.

The Usual Answer for Owner-Managers

For most owner-managers earning between roughly $80,000 and $200,000 of corporate profit, the practical answer is a mix: salary up to the CPP ceiling or the amount that fills RRSP room, dividends for anything above that. Below about $50,000 of needs, dividends alone are often simplest. Above $200,000, the calculation gets sensitive to the province and to whether you plan to leave money in the corporation, and it is worth modelling properly rather than following a rule of thumb.

The one thing not to do is take money out with no decision at all. Undeclared withdrawals become a shareholder loan, and a shareholder loan that is not repaid by the end of the following fiscal year is taxed as income with none of the planning benefits above.

Written by Targeted Accounting

CPA-led bookkeeping, payroll and outsourced CFO for Canadian businesses, with 10+ years of running and cleaning up small business books.

Want This Run on Your Own Numbers?

We model salary, dividends and the mix for your corporation and province, show you the after-tax result of each, and set up the payroll or the resolutions to make it happen. It takes an hour of your time and it is the most valuable planning conversation most owners ever have.

Want a starting point first? Run your figures through our salary vs dividend calculator, then bring the results to the conversation.

Year-End Accounting Checklist for New Canadian Corporations

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Year-End Accounting Checklist for New Canadian Corporations

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What Happens Between Your Year-End and Your First T2

Your first fiscal year as a corporation ends and, for most founders, nothing visible happens. The bank account keeps working, customers keep paying, and the deadlines are months away. That quiet period is when the work should be done, because the deadlines that follow are fixed, the penalties are automatic, and the first year sets patterns that are expensive to change later.

This checklist covers what to do, in order, from the day after your year-end to the day your T2 is filed. It assumes a Canadian-controlled private corporation with a single owner or a small group of shareholders. The rules behind each step are explained in our founder’s guide to T2 corporate tax.

Confirm Your Fiscal Year-End Date

A new corporation chooses its first fiscal year-end by filing its first T2 with that date. The only constraint is that the first year cannot be longer than 53 weeks. Many founders default to 31 December because it matches the calendar; others pick a quieter month so that year-end work does not land during their busy season.

The choice has real consequences. It sets when your tax is due, when your accountant’s busy period is, and how the first year’s income lines up against the small business deduction limit. A short first year, say four months, means a small first bill and an early start on the annual rhythm. A long first year defers everything but concentrates it. Decide deliberately, then write the date into your calendar with the three deadlines below.

The Three Corporate Year-End Deadlines

Obligation	Due	Notes
Corporate tax balance	2 months after year-end	3 months if you are a CCPC claiming the small business deduction with prior-year taxable income under $500,000. Most new small corporations qualify.
T2 return	6 months after year-end	Late filing: 5% of unpaid tax plus 1% per month, up to 12 months.
GST/HST annual return	3 months after year-end	If you are an annual filer. Quarterly filers are already on a schedule.
T4 and T5 slips	Last day of February	For any salary or dividends paid in the calendar year.
Corporate annual return	Varies by jurisdiction	Ontario corporations file within six months of year-end through the Ontario Business Registry. Federal corporations file within 60 days of the incorporation anniversary.

The trap in that table is the first row. Interest starts on the balance-due date even though the return is not late until six months. If you do not know your number by month two, pay an estimate. The full list of dates for the year is in our Canadian business tax calendar.

Gather What Your Accountant Needs

Year-end work goes fastest when everything arrives at once. Before you send anything, make sure the books are reconciled to every bank and credit card statement for the year. Then assemble:

Bank and credit card statements for every account, including the last statement that crosses year-end.
Sales records: invoices, a list of amounts customers still owe, and any deposits received for work not yet done.
Purchase records: supplier bills, a list of what you still owe, and receipts for anything over the GST/HST documentation thresholds.
Asset purchases over a few hundred dollars: computers, equipment, vehicles, furniture, with invoices and dates.
Loans and leases: agreements, statements and the year-end balance.
Everything that moved between you and the corporation: money you put in, money you took out, personal expenses paid on the company card and company expenses paid personally.
Payroll records if you paid anyone, including yourself.
GST/HST returns filed during the year.
Incorporation documents, the share register and any shareholder agreement, for the first year only.

If we do your bookkeeping most of this already exists in your file and the list shrinks to the last three items.

Year-End Adjustments to Expect

Year-end accounting turns a set of reconciled bank transactions into financial statements. Several adjustments are routine and each one changes your tax bill.

Accruals. Income earned but not invoiced, and expenses incurred but not yet billed to you, are brought into the year they belong to.

Capital cost allowance. Equipment and vehicles are not expensed when bought; a percentage is deducted each year. The first year usually gets an enhanced allowance, and the choice of how much to claim is a planning decision.

Shareholder transactions. Every dollar between you and the corporation is classified as salary, dividend, loan repayment, expense reimbursement or shareholder loan. A loan from the corporation to you that is not repaid by the end of the following year becomes taxable income, so this is worth getting right.

The salary or dividend decision. If you took money out during the year without running payroll, the year-end is where it gets characterised. Dividends can be declared after the fact; salary needs payroll remittances that were due months ago. Our tax planning guide for owner-managers covers the trade-offs, and the payroll mechanics are in the payroll handbook.

What Gets Filed at a Corporate Year-End

Your accountant produces financial statements, usually under a compilation engagement, and the T2 return with its schedules. The ones every small corporation sees are the GIFI balance sheet and income statement (schedules 100 and 125), the shareholder information schedule (50), capital cost allowance (8) and the net income reconciliation (1). Ontario corporations include the provincial calculation inside the T2; Quebec and Alberta corporations file a separate provincial return.

After filing you will receive a notice of assessment. Keep it; it confirms your balance, and it is the document lenders and the CRA will refer to. If tax payable was over $3,000, instalments for year two start shortly after, which is a subject on its own.

First-Year Mistakes We See Most

Mixing personal and corporate spending. One card for each. It is the cheapest year-end saving available.

No minute book. Director resolutions for dividends and the share register are legal requirements, and lenders ask for them.

Missing the balance-due date. Six months feels like the deadline. Interest says otherwise.

Ignoring the annual corporate return. It is a filing with the registry, not the CRA, and a missed one can eventually dissolve the corporation.

Paying yourself with no plan. Random withdrawals become a shareholder loan problem in year two.

Written by Targeted Accounting

CPA-led bookkeeping, payroll and outsourced CFO for Canadian businesses, with 10+ years of running and cleaning up small business books.

First Year-End Coming Up?

We take a new corporation from reconciled books to a filed T2, with the salary and dividend decision made deliberately and every deadline in the calendar. Ask us before the year-end, not after, and the whole process is shorter.

You Should Have Registered for GST/HST but Didn’t. Here’s How to Fix It

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You Should Have Registered for GST/HST but Didn’t. Here’s How to Fix It

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Missed GST/HST Registration: It's Fixable, and Sooner Is Cheaper

It happens more often than you would think. A side business grows faster than expected, or an owner assumes the $30,000 threshold is per year rather than a rolling four quarters, or nobody checked because the accountant only sees the books in April. Then someone notices that sales crossed the line fourteen months ago and no tax has been charged since.

The situation is recoverable. The CRA deals with late registrations every day, and there is a well-worn path through it. What matters is the order you do things in, because the wrong order can cost you penalties you could have avoided. This is a companion to the registration rules in our complete GST/HST guide.

Work Out Exactly When You Crossed the Line

Start with the date, because everything else depends on it. Pull your sales by month for the last two years and run a rolling total of any four consecutive calendar quarters.

If a single quarter on its own exceeded $30,000, you were required to be registered from the sale that pushed you over, and that sale should have carried tax. If you crossed only on the cumulative four-quarter total, you had one more month as a small supplier and were required to register from the first day of the month after that.

Remember that the threshold counts worldwide taxable and zero-rated sales, before expenses, across any associated businesses. Exempt sales such as residential rent do not count.

Write the effective date down. It is the date you will register from, the date your first return period starts, and the date from which you owe tax.

What You Owe in Back GST/HST

From the effective date onward, every taxable sale carried GST/HST whether your invoice said so or not. If your invoices showed no tax, the CRA’s usual position is that the price you charged was the pre-tax amount and the tax is owed on top of it. An Ontario business that billed $60,000 without tax over the period owes roughly $7,800, plus interest from each return’s due date.

Two things reduce that number. First, you can claim input tax credits for tax you paid on business purchases during the same period, provided you have the receipts; this is often several thousand dollars that owners forget they are entitled to. Second, if your contracts or invoices stated that prices were tax-inclusive, the tax may be treated as included in what you charged, which lowers the bill by about 11% in an HST province. That argument needs documentary support, so check your terms before assuming.

On top of the tax there is interest, compounded daily at the CRA’s prescribed rate, and a late-filing penalty on each return: 1% of the balance plus 0.25% per month late, capped at twelve months. The penalty is the part a voluntary disclosure can remove.

How to Fix Late GST/HST Registration, Step by Step

Register with the correct effective date. Use Business Registration Online or call the CRA business line. The system accepts effective dates up to 30 days in the past without question; further back, you will be asked why, and “I exceeded the threshold on this date” is the correct answer.
Decide whether to use the Voluntary Disclosures Program first. If the CRA has not already asked about your GST/HST, you may qualify. The application must be voluntary, complete, involve a penalty and be filed before any enforcement action. Accepted applications get penalty relief and partial interest relief. We usually file the disclosure and the registration together so that nothing is on record before the CRA has agreed to the terms.
Assemble the credits. Go through every business purchase in the period and pull the receipts that meet the documentation rules. This is the tedious part and the one with the best payback.
File every missing return. One return per reporting period from the effective date, each showing tax collectible on sales and credits claimed. Nil periods still need a return.
Pay what you can immediately. Interest runs until the balance is cleared. If you cannot pay in full, a payment arrangement stops collection action even though interest continues.
Talk to your customers. Registered business customers can claim the tax back, so many will accept a corrected invoice for the tax alone. Send it with a short explanation. Consumers are a different matter, and most owners absorb that portion.

Making Sure It Doesn't Happen Again

The root cause is almost always the same: nobody was watching the rolling total. Add a line to your month-end routine that compares the last four quarters of sales against $30,000, or have your bookkeeper flag it. If you are already over, the question disappears; if you are approaching it, decide about voluntary registration before the choice is made for you.

Once registered, set up a separate savings account and move the tax portion of every payment into it as it arrives. It is the single change that prevents both the “spent the tax” problem and the “forgot to file” problem. The rest of the routine, from filing frequency to instalments, is covered in the main guide and the dates are in our business tax calendar.

Written by Targeted Accounting

CPA-led bookkeeping, payroll and outsourced CFO for Canadian businesses, with 10+ years of running and cleaning up small business books.

Behind on GST/HST Registration?

We calculate the date, quantify what you owe net of credits, prepare the voluntary disclosure if you qualify, and file the returns. You get a single number and a plan instead of a stack of notices.

Do You Charge GST/HST to US and International Clients?

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Do You Charge GST/HST to Foreign Clients? Usually No

The short answer is that most sales to customers outside Canada are zero-rated. You charge 0% GST/HST, you report the sale on your return, and you still claim input tax credits on the costs of making it. That is a favourable position, and it is one of the reasons exporting Canadian businesses like the GST/HST system.

The longer answer is that “outside Canada” is a legal test, not a shipping address, and the CRA can reassess you for 13% of every foreign invoice if you cannot show the test was met. This article explains what zero-rated means, which exports qualify, which do not, and what records to keep. It builds on the rules in our complete GST/HST guide.

Zero-Rated Versus Exempt

GST/HST has three categories of sale and the difference matters more here than anywhere else.

Taxable sales carry the full rate. Exempt sales, such as most residential rent, most health care and most financial services, carry no tax, but the seller cannot recover the tax paid on related costs. Zero-rated sales are taxable at a rate of 0%: the customer pays nothing, and the seller still claims input tax credits on everything that went into the sale.

Exports fall in the third category. A Toronto software consultant billing a client in Chicago charges no tax and still recovers the HST on her laptop, her office and her subscriptions. If most of your revenue is foreign you will often be in a refund position, which is one good reason to file quarterly or monthly rather than annually.

GST/HST on Exported Goods

Tangible goods are zero-rated when you ship or deliver them to a destination outside Canada. The conditions are practical: the customer must not be buying for consumption in Canada, the goods must leave the country within a reasonable time, and you must keep evidence that they did.

Evidence means shipping documents, customs paperwork, courier tracking, or a carrier’s bill of lading showing a foreign destination. A US customer who picks the goods up from your warehouse in Mississauga and drives them across the border is a harder case; you generally need to charge tax unless you can meet the specific conditions for goods exported by the purchaser.

Online sellers shipping small parcels internationally meet the test easily, as long as the platform or courier records are kept. Our guide to bookkeeping for e-commerce businesses covers the record-keeping side.

Services and Intangibles to Non-Residents

Services supplied to a non-resident are zero-rated under the general rule in Schedule VI of the Excise Tax Act, but the exceptions are where reassessments happen. A service is not zero-rated when it is:

supplied to an individual while they are physically in Canada, for example a US tourist getting a haircut or a consultation in your Toronto office;
related to real property in Canada, such as managing or inspecting a building here;
performed on tangible personal property that is in Canada, such as repairing equipment that stays in Canada;
a telecommunication service, or an agent service arranging a taxable sale in Canada;
supplied to a non-resident who is registered for GST/HST.

The everyday cases for a Canadian service business, such as consulting, design, software development, marketing or bookkeeping delivered remotely to a US company, fall comfortably inside the zero-rated rule. Intangible property such as software licences, digital content and intellectual property rights follows similar logic: zero-rated to a non-resident who is not registered, as long as the rights are not for use primarily in Canada.

Consultants with a mix of Canadian and foreign clients will find more on structuring this in our guide to bookkeeping for consultants.

The Records That Protect You

The CRA’s position on audit is simple: a zero-rated sale is a taxable sale on which you chose to charge 0%, and the burden of proving you were entitled to do so is yours. The records that satisfy that burden are:

the customer’s name and foreign address on the invoice;
a statement, in a contract or an email, that the customer is not resident in Canada and, for services, that they are not registered for GST/HST;
for goods, proof of export as described above;
a note of where the service was performed and where the customer was when they received it.

Show the sale on your invoice with a tax line of $0 and the words “zero-rated” or “export” rather than leaving the tax line blank. It makes the treatment deliberate and obvious to a reviewer.

In your books, use a separate sales tax code for zero-rated sales so they flow to line 90 of the return as taxable sales at 0% and are not mistaken for exempt income. Getting this wrong understates your total taxable supplies, which affects your filing frequency and, for smaller businesses, the registration threshold.

Three Common Mistakes With Zero-Rated Sales

Assuming a foreign address settles it. A US company with an office in Canada that receives your service here is a Canadian supply. Ask where the work is used, not just where the invoice goes.

Forgetting the threshold. Zero-rated revenue counts toward the $30,000 small supplier test. A freelancer with $40,000 of purely American clients must register even though she will never remit a dollar; registration is what lets her claim her credits back.

Confusing GST/HST with US sales tax. Zero-rating is a Canadian question. Whether you owe sales tax in a US state is a separate one governed by that state’s rules, and many states now apply economic nexus thresholds to remote sellers. Selling to the US at any scale means checking both sides of the border.

Written by Targeted Accounting

CPA-led bookkeeping, payroll and outsourced CFO for Canadian businesses, with 10+ years of running and cleaning up small business books.

Selling Outside Canada and Not Sure You're Handling the Tax Correctly?

We review your foreign sales, set up the right tax codes in your books, and put the non-residency records in place so a CRA review is a formality. Most reviews are done within a week.

The HST Quick Method Explained: Who Should Use It and How the Math Works

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The HST Quick Method Explained: Who Should Use It and How the Math Works

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What Is the GST/HST Quick Method?

Most registrants calculate GST/HST the long way: add up every dollar of tax collected, subtract every dollar of tax paid on business purchases, and remit the difference. That works, but it means tracking an input tax credit on every receipt. The Quick Method replaces the second half of that job with a single percentage.

Under the Quick Method you still charge your customers the full rate, 13% in Ontario, 5% in Alberta, and so on. What changes is what you send to the CRA. Instead of remitting everything you collected less your credits, you remit a fixed percentage of your tax-included sales and keep the rest. The percentage is set below the rate you charge, and the gap is meant to approximate the credits you would otherwise have claimed.

For a service business with few taxable purchases, the gap is usually bigger than the credits it replaces. That difference is real money, and it is taxable income. This article, a companion to our complete GST/HST guide, walks through eligibility, the rates, a worked example and how to decide. If you just want the answer for your own numbers, use our free HST quick method calculator.

Who Can Use the Quick Method

The Quick Method is open to most small businesses whose worldwide annual taxable supplies, including GST/HST and including any associated businesses, are $400,000 or less. The test looks at the four fiscal quarters before the one in which you make the election, or any four consecutive quarters in the last five.

The CRA excludes a specific list of businesses regardless of size. You cannot use the Quick Method if you provide legal, accounting or actuarial services, or if you are a bookkeeper, financial consultant, tax preparer or tax consultant. Charities, public institutions, non-profits with substantial government funding, municipalities, universities, hospitals and listed financial institutions are excluded as well. If you are in one of these groups, the regular method is your only option.

Everyone else, from consultants and designers to trades, cleaners, restaurants and small retailers, can elect in.

Quick Method Remittance Rates by Province

The rate you remit depends on two things: whether you mainly sell services or goods, and which province your business and your customers are in. The CRA publishes the full grid in guide RC4058, but the common cases look like this:

Business location and where you sell	Mainly services	Mainly goods for resale
Ontario, selling in Ontario (13% HST)	8.8%	4.4%
Nova Scotia, New Brunswick, PEI, Newfoundland (15% HST)	10%	5%
Alberta, BC, Manitoba, Saskatchewan, territories (5% GST)	3.6%	1.8%

The rates are applied to your tax-included sales, so an Ontario consultant who invoices $10,000 plus $1,300 HST multiplies $11,300 by 8.8%, not $10,000.

“Mainly goods” means purchases of goods for resale, plus their freight, were at least 40% of your annual taxable sales. Most service businesses will not meet that and use the higher rate. If you sell into other provinces you may need more than one rate; your bookkeeping software can handle that, but it needs to be set up deliberately.

On top of the rate, you receive a credit equal to 1% of the first $30,000 of tax-included sales in each fiscal year. That is worth up to $300 a year and it is applied on your first return of the year.

Quick Method Worked Example (Ontario)

Take an Ontario marketing consultant with $120,000 in annual sales to Ontario clients and $8,000 of taxable operating expenses such as software, phone, a coworking desk and a laptop.

Regular method. She collects 13% on $120,000, which is $15,600. She paid 13% on $8,000 of expenses, giving input tax credits of $1,040. She remits $14,560.

Quick Method. Her tax-included sales are $135,600. At 8.8% that is $11,933. Subtract the 1% credit on the first $30,000, which is $300. She remits $11,633.

The Quick Method leaves her $2,927 better off for the year. That amount is added to her income for tax purposes, so the after-tax benefit is smaller, but it is still well over $2,000 for no extra work.

Now change one assumption. If her taxable expenses were $30,000 instead of $8,000, perhaps because she subcontracts a lot of the work, her regular-method credits would be $3,900 and she would remit $11,700 under the regular method. At that point the two methods are within $70 of each other, and above that level of spending the regular method wins.

The break-even for a 13% service business is roughly taxable expenses equal to a quarter of sales. Below that, the Quick Method usually wins. Above it, it usually loses.

What You Give Up With the Quick Method

The trade is straightforward: you stop claiming input tax credits on operating expenses. Rent, software, subcontractors, supplies, advertising, professional fees, all of it. The flat rate is meant to compensate you for that, and for many businesses it does more than compensate.

Capital purchases are the exception. You can still claim the full credit on equipment, computers, vehicles and other capital property, and on improvements to them. If you are about to buy a $40,000 truck, you do not lose the $5,200 of HST on it by being on the Quick Method.

The other thing you give up is simplicity of a different kind. Your invoices still show the full tax and your customers still claim it, but your own return no longer reconciles to “collected minus paid.” Your bookkeeper needs to know you have elected, and your accounting software needs the Quick Method rate configured, or your return will be wrong in the CRA’s favour.

How to Elect and When It Takes Effect

You elect by filing Form GST74 or through your CRA business account. The election generally takes effect at the start of a reporting period, and it has to be filed by the due date of the return for that period. Annual filers therefore have a wide window; monthly and quarterly filers need to plan a period ahead.

Once you are in, you must stay on the Quick Method for at least one year before you can revoke it, unless you become ineligible. If your sales cross the $400,000 threshold, the election stops applying from the start of the next fiscal year.

A practical note: the election is per business, not per owner. If you run two registered businesses, each one needs its own decision and its own form.

Written by Targeted Accounting

CPA-led bookkeeping, payroll and outsourced CFO for Canadian businesses, with 10+ years of running and cleaning up small business books.

Not Sure Which Method Is Cheaper for You?

Start with the quick method calculator to see which side you land on. Then send us a year of sales and expenses and we will run both calculations on your actual figures, tell you the difference in dollars, and file the election if it makes sense. It usually takes a day.

Sole Proprietorship vs Corporation vs Partnership in Canada

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Sole Proprietorship vs Corporation vs Partnership in Canada

Targeted Accounting

How to Choose a Business Structure in Canada

Sole proprietorship vs partnership vs corporation is the first real decision most Canadian business owners make, and it shapes everything after it: how much personal risk you carry, how your profits are taxed, how much paperwork you file each year and how easily you can bring in partners or investors. This guide compares the three structures side by side, with a comparison table, the tax rates that apply in Canada, what each costs to set up, and a plain answer to the question most people are really asking: when does it make sense to incorporate?

In short

Sole Proprietorship: Simple to set up and offers full control but comes with unlimited personal liability. Best for small, low-risk businesses and freelancers.

Partnership: Allows shared resources and expertise but requires a solid agreement to manage liabilities and decision-making. Ideal for co-founders with complementary skills.

Corporation: Provides limited liability and tax advantages but involves more administrative work. Suitable for businesses with growth ambitions and high-risk industries.

Risk vs. Reward: Choosing the right structure depends on factors like liability protection, tax benefits, and long-term growth plans.

Legal & Financial Planning: Understanding each structure’s implications can help entrepreneurs make informed decisions and avoid costly mistakes.

Sole Proprietorship vs Partnership vs Corporation: Side-by-Side Comparison

	Sole proprietorship	Partnership	Corporation
Legal status	You and the business are the same person	Partners and the business are the same (general partnership)	Separate legal entity from its owners
Personal liability	Unlimited	Unlimited and joint in a general partnership; limited partners are protected in an LP	Limited to what you invested, unless you sign a personal guarantee
How profit is taxed	On your personal T1 at graduated rates, up to 53.53% in Ontario	Each partner reports their share on their own T1; a T5013 partnership return may be required	Corporate rates: about 11.2% on the first $500,000 of active income in Ontario (since Ontario’s July 1, 2026 rate cut), then personal tax only when you pay yourself
Setup cost	Low: Ontario business name registration is about $60	Low to moderate: name registration plus a partnership agreement	Higher: $200 federal or $300 Ontario filing fee, typically $1,000 to $2,000 with a lawyer
Annual paperwork	T1 with form T2125	T1 for each partner, plus T5013 where required	T2 corporate return, financial statements, annual corporate filing and minute book
Tax deferral and income splitting	None	None	Yes: leave profits in the company, choose salary vs dividends (subject to TOSI rules)
Lifetime capital gains exemption on sale	No	No	Yes, on qualified small business corporation shares (about $1.25 million)
Best for	Freelancers, side businesses and low-risk services	Co-founders or professionals sharing a practice	Growing, profitable or higher-risk businesses

Rates and fees are for Ontario for the 2026 tax year and change periodically.

What Is a Sole Proprietorship?

A sole proprietorship is the simplest way to start a business. You and the business are legally the same entity, which means income, debts, and liabilities all flow directly to you personally.

Ease of Setup: Registering a sole proprietorship usually involves minimal paperwork and costs.
Unlimited Liability: Because there’s no legal separation between you and the business, your personal assets could be at risk if the company incurs debt or faces lawsuits.

For many first-time entrepreneurs or sole operators (like independent consultants, e-commerce sellers, or service providers), this model can be a low-cost, low-hassle way to test ideas in the market. However, it’s important to remember that the simplicity comes with risk: in the event of financial trouble, creditors can lay claim to both business and personal assets.

Advantages

Simplicity: Minimal registration requirements and lower startup costs.
Full Control: All decisions, from pricing to operations, rest entirely on you.

Disadvantages

Unlimited Liability: Personal assets are at risk if the business can’t meet its debts or is sued.
Tax Implications: As profits grow, you may fall into higher personal tax brackets.

When Should I Consider a Sole Proprietorship?

Early-Stage Ventures: If you’re testing a new product or service and want to keep costs and complexity low, this structure can be ideal.
Freelancers & Independent Contractors: Those offering professional services (e.g., consulting, graphic design, personal coaching) often find this route straightforward.
Limited Capital & Risk: If your initial investment is small and your industry exposure is relatively low, it’s often easiest to start here.

What Is a Partnership?

A partnership involves two or more individuals pooling resources, sharing responsibilities, and dividing profits (and debts) according to a partnership agreement. While some partnerships form informally, having a clear, written agreement is strongly recommended to prevent misunderstandings.

A partnership can be particularly advantageous if each partner brings a unique skill set or financial contribution. However, partners generally share liability for any debts or lawsuits against the partnership, so each person’s decisions can affect everyone involved.

Advantages

Shared Resources & Expertise: Partners can divide tasks according to their strengths, accelerating growth and problem-solving.
Simplicity Compared to a Corporation: Partnerships involve fewer bureaucratic hurdles than incorporating, making them relatively straightforward to set up.

Disadvantages

Joint Liability: Each partner can be held accountable for business debts or legal actions stemming from another partner’s conduct.
Potential Conflicts: Without a well-structured agreement, disagreements over profit sharing, decision-making, or business direction can disrupt operations.

When Should I Consider a Partnership?

Collaborative Projects: If you have a co-founder whose abilities complement yours, such as a product developer paired with a marketing expert, a partnership can leverage both skill sets effectively.
Shared Financial Risk: Splitting startup costs, debts, and workloads can make more ambitious projects feasible if you’re comfortable sharing decision-making.
Mid-Level Complexity: If you need more resources than a sole proprietorship but aren’t ready for the administrative demands of a corporation, a partnership can be a strong intermediary.

What Is a Corporation?

A corporation is a legally distinct entity, separate from its owners (shareholders). You can incorporate federally or at the provincial level, each with its own set of rules. While this structure involves stricter regulatory obligations, it also provides strong liability protection and can present advantageous tax scenarios for profitable businesses.

Advantages

Limited Liability: Shareholders’ personal assets are typically protected; creditors cannot pursue them beyond the amount invested in shares.
Tax Planning Opportunities: Corporations in Canada may benefit from lower tax rates under the Small Business Deduction if they meet specific conditions.

Disadvantages

Higher Administrative Burden: Incorporating requires more paperwork, annual filings, and separate corporate tax returns.
Potential Double Taxation: Profits are taxed at the corporate level, then again as personal income when distributed as dividends. However, dividend tax credits can lessen this impact.

When Should I Consider Incorporating?

Significant Growth Plans: If your business strategy involves raising capital, issuing shares, or scaling rapidly, a corporation’s structure is often better suited for expansion.
Risk Mitigation: Industries with higher liability exposure, such as construction or complex professional services, often use corporations to protect owners’ personal assets.
Future-Focused Tax Strategies: If profits are substantial, retaining earnings within a corporation may offer a lower tax rate compared to personal income tax, especially if you plan to reinvest in the business.

Already a sole proprietor and wondering about timing? See our guide on when to incorporate your business.

Each business structure (sole proprietorship, partnership, and corporation) serves a specific set of needs. Sole proprietorships deliver simplicity and direct control but expose the owner to unlimited liability. Partnerships can propel a venture forward through shared expertise and resources, yet they also require clear agreements to prevent disputes and shared liability issues. Corporations provide a robust shield for personal assets and can unlock various tax benefits, though at the cost of more administrative duties.

In the end, your choice should reflect both your current situation (for example, financial risk tolerance, available capital, desire for complexity) and long-term objectives (such as growth plans, liability concerns, and attracting investors). If you stay a sole proprietor, our sole proprietor tax guide covers what you file. If you incorporate, start with the T2 corporate tax guide and our salary vs dividend calculator. Either way you will need a CRA business number. If you’re still unsure which path to choose, Targeted Accounting can provide personalized guidance on structuring your business, optimizing tax strategies, and ensuring compliance with Canadian regulations.

Frequently Asked Questions

Is it better to be a sole proprietor or a corporation in Canada?

It depends on profit and risk. If you spend everything the business earns, a sole proprietorship is usually cheaper and simpler, because the small business tax rate only helps when you can leave money in the company. Incorporating starts to pay once your profit is well above what you need to live on, when you face real liability exposure, or when you plan to sell the business and want the lifetime capital gains exemption.

How much does it cost to incorporate in Canada?

The government filing fee is $200 for a federal corporation filed online and $300 for an Ontario corporation. Using a lawyer or incorporation service typically brings the total to $1,000 to $2,000, including the minute book and share structure. Expect ongoing annual costs too: a T2 corporate tax return, financial statements and the annual corporate filing.

Can I change from a sole proprietorship to a corporation later?

Yes. Many businesses start as a sole proprietorship and incorporate once profits grow. Assets can usually be transferred into the new corporation on a tax-deferred basis using a section 85 rollover, so you do not trigger tax on the transfer. You will need a new CRA business number and program accounts for the corporation.

What is the difference between a partnership and a corporation?

A partnership is not a separate legal entity: each partner reports their share of profit on their own personal return and is personally liable for the partnership’s debts. A corporation is a separate entity that pays its own tax at corporate rates, shields the owners’ personal assets, and can keep earnings inside the company. Partnerships are simpler to run; corporations give more protection and tax planning room.

Do I need a business number for a sole proprietorship?

Only when you need a CRA program account, for example once you register for GST/HST (required when sales pass $30,000 in four consecutive quarters) or hire an employee and run payroll. Until then a sole proprietor reports business income on their personal return using their SIN. A corporation always gets a business number when it incorporates.

Written by Targeted Accounting

CPA-led bookkeeping, payroll and outsourced CFO for Canadian businesses, with 10+ years of running and cleaning up small business books.

Ready to Take the Next Step in Your Business Journey?

Targeted Accounting is more than just an accounting firm: we’re your strategic partner in building a strong financial foundation. Whether you’re launching a startup or re-evaluating your current business structure, our team provides expert guidance tailored to your goals. From choosing the right legal structure to optimizing tax strategies and ensuring compliance with Canadian regulations, we’ll help you make informed decisions every step of the way. Contact us today to schedule a consultation and see how Targeted Accounting can support your business success.

Targeted Accounting merges with AgileCPA

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Toronto, December 2023 (updated October 2026)

Targeted Accounting and AgileCPA have merged, uniting two outsourced bookkeeping and financial advisory firms under the Targeted Accounting name.

The merger brought together the professionals, resources and service capabilities of both firms to offer clients a broader range of outsourced bookkeeping, accounting, tax and financial management services.

As part of the planned leadership transition, Dianna Thorne, founder and president of Targeted Accounting, retired. Wendy Ha, Principal Partner and CEO of AgileCPA, became President of the combined firm. “Wendy and I share a similar approach to business excellence,” said Thorne at the time.

Ha brings more than a decade of advisory experience to the role. “What I find most rewarding about this merger is the chance to build on the strong foundation Dianna established,” she said. “With our combined capabilities and resources, we are positioned to bring even more value to our clients while giving our team new opportunities to grow.”

Accounting for a Brighter Future

Update, October 2026: Former AgileCPA clients continue to be served by the same team at Targeted Accounting. For enquiries, use the Book an Appointment link above or email info@targetedaccounting.com.