When it comes to managing your finances, your business structure has a significant impact on how you handle bookkeeping. Whether you're a sole proprietor or you’ve incorporated your business, the CRA expects accurate and compliant financial records. However, the requirements for each structure are different.
Here’s a breakdown to help small business owners understand how bookkeeping changes depending on how your business is set up.
A sole proprietorship is straightforward when it comes to bookkeeping.
Key Characteristics:
You and your business are the same legal entity
Fewer reporting requirements
Lower administrative burden
What You Need to Track:
Business income and expenses (for your T2125 tax form)
Receipts and invoices
Mileage logs (if using a personal vehicle for business)
GST/HST if registered (only required if you earn over $30,000 in a single calendar quarter or over the last four consecutive calendar quarters)
Banking Tip: While not required, it’s a good idea to separate your business and personal bank accounts to keep records clean.
Payroll: You typically don’t run payroll for yourself. You simply draw from your profits.
Once you incorporate, your business becomes a separate legal entity. This means more robust bookkeeping is required.
Key Characteristics:
Separate legal and financial entity from the owner
Must maintain corporate records and minute books
Requires a corporate tax return (T2)
What You Need to Track:
All income and expenses
Assets and liabilities (balance sheet items)
Owner’s salary or dividends
Payroll remittances (if you pay yourself or others as employees)
GST/HST collected and paid if registered
Corporate bank account transactions
Year-End Requirements: Corporations can choose their fiscal year-end, which determines when their bookkeeping must be finalized and taxes filed.
Payroll: If you pay yourself a salary, you must register for a payroll account with CRA and remit source deductions (CPP, EI, income tax).
For sole proprietors, bookkeeping is generally simpler and more flexible. For incorporated businesses, bookkeeping becomes more formal and detailed—but with that comes more control, planning opportunities, and a clearer picture of business performance.
If you're unsure where to start or need help setting up a proper bookkeeping system, our team is here to support you every step of the way.