You must pay provincial and federal taxes on your business income. Income from sole proprietorships and partnerships is taxed as personal income. Corporations must file their own separate taxes. You must also take deductions from your employees' pay for Canada Pension Plan, Employment Insurance, and income tax contributions.
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If you own a sole proprietorship or are part of a partnership, your business income (or your share of it) will be taxed as your own personal income. Make sure you budget for it – save a portion of your revenue so you'll have your payment ready when tax day comes.
You will report your sole proprietorship and partnership income on your T1 General Return. Learn more about taxes for sole proprietorships and partnerships on the Canada Revenue Agency website.
Tax-deductible expenses for sole proprietorships and partnerships
You can deduct business-related expenses from your taxable income. Your expenses must relate to generating business income.
Corporations must file their own separate tax return. Corporate earnings are not taxed as part of your personal income. Taxes for corporations can be complex. You may want to seek help from an accountant to make sure you're complying with all the applicable laws.
The Government of Alberta has an excellent overview of provincial corporate tax law and federal corporate tax law. Or visit the Canada Revenue Agency's guide to corporate taxation.
You may have to charge your customers GST (Goods and Services Tax) on your business' products and services, and remit it back to the federal government. Most goods are taxable, but some are exempt – check with the Canada Revenue Agency to find out if your products or services are exempt from GST.
The province of Alberta does not have HST (Harmonized Sales Tax) or PST (Provincial Sales Tax), but you may have to add them if you operate in other provinces. Check with the provincial government of each province or territory you're operating in to find out what additional taxes apply to you.
Excise taxes and excise duties
Additional excise taxes and excise duties may apply to some types of goods.
Excise taxes apply to:
- Fuel-inefficient vehicles
- Automobile air conditioners
- Certain petroleum products
Excise duties are charged on:
- Tobacco products
As an employer, you must deduct the following from your employees' pay:
- Canada Pension Plan (CPP) contributions
- Employment Insurance (EI) premiums
- Income tax
Visit the Canada Revenue Agency to calculate payroll deductions you must make. You may also have to deduct Workers Compensation Board of Alberta premiums, depending on your industry.
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