Top 5 Tax Mistakes Small Business Owners in Canada Make (and How to Avoid Them in 2025)

Running a small business in Canada comes with many responsibilities — from managing clients to paying employees. But one area that can cause serious headaches (and financial penalties) is tax compliance. Every year, small business owners lose money due to common mistakes when filing their taxes with the Canada Revenue Agency (CRA).

In this blog, we’ll cover the top tax mistakes small business owners make and how you can avoid them in 2025.

1️⃣ Missing GST/HST Deadlines

If your business makes over $30,000 in revenue, you must register for GST/HST. Many small business owners forget to remit their returns on time.

• What happens if you’re late? CRA charges interest + penalties for missed filings.

• How to avoid it:

  • Set up reminders in your calendar.

  • Hire a professional bookkeeper to manage GST/HST filing.

  • Use cloud accounting tools like QuickBooks Online for automated reminders.

2️⃣ Mixing Personal & Business Expenses

A very common mistake is using the same bank account or credit card for both personal and business expenses. This makes it difficult to separate deductible expenses, and in case of a CRA audit, you may lose out on claims.

• Example: Claiming family groceries or personal fuel as business expenses.

• Solution:

  • Open a separate business bank account.

  • Track expenses using bookkeeping software.

3️⃣ Not Claiming All Eligible Deductions

The CRA allows small business owners to deduct many expenses, but most people leave money on the table.

• Common deductions:

  • Office supplies & software

  • Business meals (50%)

  • Vehicle expenses (portion used for business)

  • Home office expenses

  • Professional fees (accountants, bookkeepers)

• Solution: Keep receipts & mileage logs. Work with a tax preparer who knows small business deductions.

4️⃣ Incorrect Payroll Deductions

If you have employees, you must deduct CPP, EI, and Income Tax and remit to the CRA. Incorrect calculations can result in penalties or upset employees.

• Common mistakes:

  • Forgetting to remit on time.

  • Using wrong rates for CPP/EI.

• Solution:

  • Use automated payroll services (QuickBooks, Wagepoint).

  • Hire a professional to manage payroll and compliance.

5️⃣ Late Corporate Tax Filing (T2)

For incorporated businesses, missing your T2 Corporate Income Tax Return filing deadline means heavy penalties. Even if your business had zero income, you still need to file.

• Deadline: 6 months after fiscal year-end.

• Penalty: 5% of unpaid tax + 1% for every month late.

Solution:

• File early.

• Work with a corporate tax professional.

• Keep your books updated year-round instead of waiting until tax season.

✅ Final Thoughts

Tax mistakes can be costly, but the good news is — they are 100% avoidable with the right systems and support. By keeping accurate books, separating expenses, filing on time, and working with professionals, you’ll not only stay compliant but also save money.

👉 Need help with Bookkeeping, Payroll, GST/HST, or Tax Filing in Canada?
Visit bsbookkeepingtax.com for more info.