Common tax mistakes Canadian founders make
The expensive errors we see over and over. None of these are exotic. All of them are avoidable.
Published March 19, 2025 · 7 min read
Most Canadian small business tax problems are not because the rules are unfair. They are because founders make a handful of recurring mistakes that compound year over year. Here are the ones we see most often.
Mixing personal and business expenses
Using one credit card for both personal and business spending makes year-end accounting a nightmare and reduces deduction accuracy. You will inevitably miss legitimate business expenses or wrongly claim personal ones.
Fix: separate credit card and bank account from day one. Cost is zero. Benefit is enormous.
Not tracking mileage
Vehicle expense deductions require a mileage log. The CRA wants date, destination, purpose, and kilometres for every business trip. Reconstructing this at year-end never works.
Fix: use a phone app that tracks automatically. Set it up once. Done forever.
Filing late
Late-filing penalties are 5 percent of unpaid tax plus 1 percent per month, up to 12 months. On a $20,000 tax bill, that is $3,400 in pure waste.
Fix: file on time even if you cannot pay on time. The penalties are separate.
Ignoring provincial programs
Most accountants are excellent at federal credits and weaker on provincial grants. Founders assume their accountant has covered everything. Often they have not.
Fix: take the Deductly quiz, then bring the list to your accountant.
Bad documentation for the home office deduction
You need a floor plan or measurement, plus utility bills, plus rent or mortgage documentation. Most founders try to estimate after the fact and lose part of the deduction.
Fix: measure once. Keep a folder of utility bills. Set up a recurring reminder.
Not registering for GST/HST early
If you have significant business expenses, registering for GST/HST early lets you recover the tax on every expense via Input Tax Credits. Many businesses delay registration and lose this.
Fix: if you are spending meaningfully on your business, register before you hit the $30K threshold.
Forgetting to claim incorporation costs
Legal fees, accounting fees, and other professional costs around incorporating are deductible. The first $3,000 is deductible immediately; the rest is amortized.
Fix: keep every invoice from your incorporation process. Hand them to your accountant in year one.
These mistakes are not about lacking knowledge. They are about lacking systems. Set up the systems once, run them in the background, and you will avoid the most expensive tax errors Canadian founders make.