How to set aside money for taxes as a business owner in Canada

They say the only thing certain in life is taxes (let’s skip the other one for now 🙃). And while we can’t avoid them, we can plan for them. With a few simple habits, setting aside money for taxes can actually feel organized and calm. Yes, calm and taxes can go together!!

Why Setting Aside Matters

It’s tempting to think of everything in your business account as “available.” But in fact, part of that money already belongs to the CRA. By putting aside money regularly, you avoid the panic of scrambling at the last minute, or worse: dipping into personal savings.

Step 1: Open a Separate Savings Account

Set up a dedicated business savings account, just for taxes. Think of it as your “tax bucket.” When the money is in there, you’re less likely to spend it by accident. Bonus: it may even earn a little interest while it sits.

Step 2: Transfer Money Regularly

Each month (or quarter), transfer a portion of your income into your tax savings account. If possible, set up automatic transfers from your chequing account to your tax savings account. The less you need to think about it, the more likely it will happen consistently.

Step 3: Use Your Books (and Your Accountant) to Guide You

Your bookkeeping software (like QuickBooks Online) can help you estimate taxes based on income and expenses.

If you’re a sole proprietor or a partnership, this money goes toward your personal income taxes. A safe rule of thumb in Ontario is to put aside about 30% of your net profit.

If you run an incorporated business, you’ll be setting aside for corporate income taxes instead. Your tax rate may be lower than 30%. It's best to check with your accountant what's best for your situation.

Oh, and of course, factor in those installments you're already making to the CRA during the year!

Don't Forget About HST

If you are an annual HST filer, it's a smart idea to also set aside reserves for your HST. If you'd like, you can use the same savings account to keep it simple.

Pro Tip: Overestimate Rather Than Underestimate

It’s better to have a little extra set aside than not enough. If you’ve saved more than you need, you can treat yourself later (or reinvest in your business 🌱).

Need Help?

Not sure how to track your tax reserves in QuickBooks? I’m here to help. Have a look at my website or book a free consultation. Let’s bring back 'calm'.

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Hi, I'm Katrien. With Second Banana Bookkeeping & Advisory, I help coaches, consultants and health professionals translate their numbers so they can make smarter, and calmer business decisions.

Disclaimer: The information in this post is for general educational purposes only and may not apply to your specific situation. Tax rates and rules vary depending on your business structure and location. Always check with your accountant or tax professional for advice tailored to your business.