Why should I save money to pay corporation tax?
In your first year of starting a corporation, tax planning can be critical. You want to avoid a large tax bill that you're unable to pay by the deadline.
With a corporate tax rate of 11% (federal & provincial) and GST of 5% (provincial) on net amounts, you should assume a 15-20% range to begin your estimate.
Corporate tax
For most corporations, it's generally easier to save based on gross revenue or a percentage of billings, as this amount is always known throughout the year. We recommend 10% of gross billings as a great place to start until a full understanding of your business and how you pay yourself can be determined.
Whether you draw a dividend versus a salary can be a major determining factor in this estimate. You should have a conversation with your accountant to turn the estimate into a tangible number.
GST/HST and PST
GST/HST and PST are collected on taxable supplies and services, and the rate is determined provincially. Find out more about the difference in tax rates. These taxes are not income that should be kept by the collector. Instead, the funds collected should ideally be saved for when the applicable returns are filed to pay off the balances owing. You can keep these amounts in a separate bank account or prepay them to the applicable governments to be deducted on filing.