Tax Planning for Small Business in Canada: Stop Being Surprised by Taxes
If tax season feels like a jump scare every year, you’re not alone.
Most entrepreneurs don’t get surprised by taxes because they’re careless. They get surprised because taxes aren’t built into the rhythm of their business.
And the fix isn’t complicated.
It’s a simple tax planning habit that makes your cash flow feel calmer, your decisions clearer, and your “future you” way less stressed.
This is a practical guide to tax planning for small business in Canada—especially for sole proprietors, independent contractors, side hustlers, and rental property owners. p.s. did you know I have a tax prep guide too? Get it here
Why taxes feel so painful (even when your business is doing well)
Here’s what usually happens:
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You have a decent year
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Money comes in
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You reinvest, pay bills, live life
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Then tax time arrives and suddenly you’re scrambling
That’s because taxes aren’t something you “deal with later.”
Taxes are connected to what you earn as you earn it.
So when you don’t plan for them as you go, you end up using future tax money to pay today’s expenses.
The simplest habit: set aside taxes as you earn
This is the habit I want you to adopt for 2026:
Every time you get paid, move a percentage into a separate “tax” bucket.
You can do it:
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weekly
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per deposit
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bi-weekly
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monthly
The frequency matters less than the consistency.
Think of it like this: taxes are a “silent partner” in your business income. If you treat them like they don’t exist, they’ll show up loudly later.
“But how much should I set aside?”
You don’t need the perfect percentage to start.
Start with a placeholder percentage and refine once you’ve reviewed:
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your year-to-date profit
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your expected annual income
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your past tax return (or accountant guidance)
A small consistent set-aside is better than a perfect plan that never happens.
Important note: Your ideal set-aside depends on your situation (sole prop vs corporation, other income, deductions, etc.). This is general planning guidance, not personal tax advice.
The scale-up upgrade: set aside taxes plus plan for instalments
As you grow, the CRA may require tax instalments (payments during the year instead of one big payment later). If you’re scaling, this is where people get caught:
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they set aside for “the tax bill”
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but forget instalments may also be due
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cash flow gets tight at the wrong time
If you’ve been asked to pay instalments before (or your income is rising), it’s worth planning early so it doesn’t hijack your cash flow.
Tax season preparation: what to do monthly (10 minutes)
If you want tax season to be calm, do a quick monthly check-in:
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Revenue collected (not just invoiced)
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Expenses (watch the creep)
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Profit estimate (rough is fine)
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Tax set-aside balance (is it growing consistently?)
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Anything unusual (big purchases, vehicle/home office, new rental expenses)
This monthly routine prevents the “March panic clean-up.”
For rental property owners: don’t mix it all together
Rental properties are where I see people accidentally create stress because they mix:
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rental income/expenses
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personal spending
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business spending
Even if you do nothing else, do this:
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separate account or clear tracking for rental income/expenses
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keep receipts organized monthly (not annually)
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track repairs vs improvements (this matters)
This one change makes your tax season dramatically smoother.
CRA authorization + onboarding (why earlier is better)
One more practical note: the CRA has updated/modernized parts of the process for authorizing accountants to access client CRA accounts. That can add extra steps and time.
If you want support this season, onboarding earlier (by end of February) helps ensure everything is set up properly before deadlines and peak-season backlogs.
Quick start checklist (do this this week)
If you want a simple action plan, start here:
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Open a separate “Tax” savings account (even if it’s just a second account)
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Pick a set-aside percentage and automate it
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Do a monthly 10-minute check-in
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Keep receipts organized monthly (not once a year)
Tax planning doesn’t have to be stressful.
It just has to be consistent.
Want a simple system for this? The Entrepreneur Toolkit walks you through exactly what to track and how to stay CRA-ready. https://1shalini.com/bizbuddy-program/
This article provides general information and education only. It is not accounting, tax, legal, or investment advice. Any strategies mentioned may not be suitable for your situation. For guidance specific to you or your business, please consult a CPA and/or licensed financial advisor.
