Updated Checked by the Tax-Services.ca editorial team How we check
Bookkeeping when incorporating changes in one big way: the company becomes a separate person, so it needs its own bank account, its own books and its own tax return. That T2 return is due six months after the corporation’s year end. Every dollar that moves between you and the company has to be recorded as what it really is.
What changes in your bookkeeping on the first day?
As a sole proprietor you probably ran everything through one set of books, and a personal card slipped in now and then. That stops here. The corporation owns the sales, the bills and the bank balance, and you’re one of the people it deals with.
Open a business account in the company’s name before the first invoice goes out. If you put your own money in to get started, record it as a loan from you or as share capital, and write down which one. If the company later pays you back, the books need to show a repayment and not a made-up expense.
Here’s how that looks. Priya in Winnipeg puts $10,000 of her savings into her new company. If it’s a loan, the books show $10,000 owed to her. When the company repays $2,000 in the fall, the balance drops to $8,000 and no expense is booked. If she’d called it share capital instead, a repayment would be a different transaction entirely, which is why the label matters on day one.
Register for payroll if you’ll pay yourself a salary, and for GST/HST once you pass the small supplier limit. Both accounts belong to the corporation, so both need their own paper trail.
How do you record the money you take out?
There are three ways to pull cash out of a company, and each one lands in a different place in the books. Salary is an expense and needs payroll deductions. Dividends aren’t an expense, and they come out of profit after tax. A repayment of what you lent the company is neither, since it just shrinks a debt.
Mixing them up is where the mess starts. A withdrawal with no label gets parked in a shareholder account, and somebody has to untangle it at year end, usually while the return deadline is getting close and nobody remembers what the cheque was for.
Take a salary of $78,000 paid every two weeks in Ontario, which is $3,000 a period. Using the 2026 figures in our payroll remittance calculator, the company holds back about $732.62 from your pay for tax, CPP and EI. It adds about $228.41 as the employer share. So it sends the CRA about $961.03 each period, and your books need a line for every part of that. The dividend tax calculator covers the other route.
Which numbers should you keep at hand?
| Item | Figure |
|---|---|
| T2 return due | Six months after the tax year end |
| How long to keep records | Six years from the end of the last tax year they relate to |
| Where records are kept | At your place of business or home in Canada, unless the CRA agrees in writing |
| GST/HST small supplier limit | $30,000 of taxable sales, in one quarter or over four quarters |
| Federal small business rate | 9% on the first $500,000 of active business income |
| Ontario small business rate | 3.2% cut to 2.2% from 1 July 2026, so a calendar 2026 year is a blend of about 2.7% |
The six-year and storage rows come straight from the CRA’s keeping records guide, and the 9% rate from its corporation tax rates page.
What does the return need from your books?
The T2 asks for financial statements built from your ledger, so the books have to close cleanly at year end. That means every bank account is reconciled and every loan balance agrees with what you and the company think it is.
Here’s a rough look at the tax itself. A Canadian-controlled private corporation in Ontario with $100,000 of active business income comes to about $11,696 in combined tax on a calendar 2026 year, or 11.7%. That is our calculator’s estimate, and the Ontario piece is a blend we derived by days, not a published rate, so a different year end gives a different result. A corporation that isn’t a Canadian-controlled private company pays about $26,500 on the same income. Try your own numbers in the corporate tax calculator.
Sales tax needs its own line. If you’re close to the $30,000 limit, the GST/HST calculator shows how much a sale carries.
What should your first month of books include?
A short list does the job. Opening entries for anything you moved over from the old business. A shareholder loan account with the starting balance. A folder for the incorporation documents and share certificates. A habit of reconciling the bank once a week while the volume is small. And a calendar with the year end, the T2 date and any payroll remittance dates. None of it takes long, and it beats rebuilding the first six months from bank statements at tax time.
Where do new corporations slip up?
Paying a personal bill from the company account is the classic one. It isn’t fatal, but each one needs a label, and a pile of them makes the shareholder account hard to trust.
Others are quieter. People forget the opening entries for what they moved over from the old business. They keep files on a cloud server abroad without checking the storage rule. They also treat salary and dividends as the same thing, and then can’t explain the year-end total to the person preparing the return.
Should you move a self-employed business into a company at all? That’s a tax question, not a bookkeeping one. The self-employed tax calculator gives you the sole proprietor side to compare, though it leaves out EI.
And one honest limit: a calculator can’t tell you how your company is set up, and it covers associated corporations and passive income only through optional boxes and ignores credits.
How we checked the figures
Federal corporate rates and the return deadline come from the Canada Revenue Agency‘s corporation tax pages and its T2 guide. The record retention and storage rules come from the CRA’s record keeping pages. The Ontario cut to 2.2% is on the CRA’s what’s new page for corporations, and the blend for a calendar 2026 year is our own arithmetic. Payroll figures use the 2026 CPP and EI limits. The 2026 filing calendar beyond the six month rule hasn’t been confirmed. This is an independent site with no tie to the CRA.
Frequently asked questions
Do I need a separate bank account after incorporating?
Yes, for practical reasons. The company is a separate legal person, and one account in its name keeps its money apart from yours and makes the books far easier to close.
When is the T2 return due?
Six months after the corporation's tax year end. If the date lands on a weekend or holiday, the next business day counts.
How long do I keep the company's records?
Six years from the end of the last tax year they relate to. Some records, such as those for property, have to be kept longer.
Is money I put into the company an expense?
No. Record it as a loan from you or as share capital. If it's a loan, a later repayment reduces the debt and isn't a company expense.
Do I have to register for GST/HST right away?
Not if your taxable sales stay at or under $30,000 in each quarter and over four quarters. Past that, you register.
- Self-employed taxes in Canada: income, CPP and GST
How tax works when you are self-employed in Canada: reporting income and expenses, paying both halves of CPP, instalments and when to register for GST