Sole Proprietor Bookkeeping in Canada: What You Actually Need to Track
Your business and your personal life are the same taxpayer. Here’s what that actually means for your books!
The hardest part of bookkeeping as a sole proprietor isn’t the bookkeeping. It’s that there’s no built-in line between
you and your business.
When you run a corporation, the company is its own legal person. Its money is its money and yours is yours, and the separation is built in whether you like it or not.
As a sole proprietor, you and the business are the same taxpayer. One tax return. One pile of money that happens to be doing two jobs.
And everyone assumes that makes it simpler. But it makes it harder, because nothing is drawing the line for you. You have to draw it yourself, and you have to draw it as you go, because reconstructing it in April from memory and a credit card statement does not work.
So, here’s what actually needs tracking, and why each one matters more than it looks!
Every dollar that came in, not just the ones that were invoiced.
Your business income is everything you earned from the business, regardless of how it arrived.
An e transfer from a client who did not want an invoice counts. Cash counts. A payment that landed in your personal account because that is the one they had on file counts.
I see this most often with people running something on the side of employment. They track the invoiced work carefully and quietly forget the two jobs a friend paid them for directly. That is still business income and it still gets reported.
The practical version: pick one place where income gets recorded the moment it arrives, and put everything there. Not four places. One.
Expenses, with what you brought written down somewhere.
A bank statement is not a receipt, and this catches people out constantly.
The statement proves you spent sixty dollars at a store. It does not show what you bought, and what you bought is the whole question when someone is deciding whether the expense was for the business. Same store, same amount, completely different answer depending on what was in the bag.
So keep the receipt. Not the paper, necessarily. A photo taken in the parking lot is fine, and it is far more likely to survive than paper in a drawer, which is most of what I get handed in April.
The CRA generally expects you to keep records for six years from the end of the tax year they relate to. Digital is acceptable. Faded thermal paper you cannot read is not.
Do sole proprietors need a separate business bank account?
There is no law requiring a sole proprietor to have a business bank account.
But I would still recommend one to almost every sole proprietor I work with, and it is the single change that improves someone's books the most!
Not because it makes the bookkeeping tidier, although it does. Because it makes the year legible. When business money runs through one account, the account is the record. When it runs through the same account as your groceries and your mortgage, somebody has to go through the whole year afterward deciding what was what, and that somebody is either you at 11pm or me at my chargeout rate.
If everything is currently mixed, do not try to unpick three years of it. Open the account, start clean from a date, and deal with the history separately.
Owner's draws: what taking money out actually is
Money you take out of a sole proprietorship is a draw. It is not a wage, it is not an expense, and it does not reduce your business income.
This surprises people every time. You cannot pay yourself a salary as a sole proprietor and deduct it. Your business profit is what gets taxed, whether you took it out or left it sitting there. What you draw is just you moving your own money around.
Worth tracking anyway, because it tells you what the business actually supported you with over the year, which is a different and often more useful number than profit.
The $30,000 GST/HST threshold and when you have to register
You are required to register for GST or HST once your taxable revenue passes $30,000.
That test runs two ways, over four consecutive calendar quarters, or in a single quarter, and it is a rolling window rather than a calendar year.
The part that catches people is the timing. You stop being a small supplier on the sale that takes you over, not at the end of the month or the year. You are supposed to charge tax on that sale, and you have 29 days to register. If you missed it and did not charge, the CRA can still expect the tax from you, and you are the one paying it out of your own pocket.
So the number to actually track is your rolling twelve month revenue. Not your year to date. If you have had a good few months and you are somewhere near thirty thousand, that is the moment to ask, not after year end.
Registering voluntarily before you have to is sometimes the better call, particularly if you are buying equipment or your clients are businesses who can claim the tax back themselves. That one depends on your situation.
Vehicle expenses and your mileage log
Vehicle claims are one of the areas the CRA asks about most, and also the area where people have the least to show.
The claim is based on the split between your business kilometres and your total kilometres for the year, so you need both. Not just the business ones. That means the odometer reading at the start of the year is worth writing down somewhere you will find it again.
What a log needs is the date, where you went, why, and the distance. An app that runs in the background and lets you swipe each trip business or personal takes about two minutes a week. Reconstructing it in April from calendar entries takes four hours and does not hold up nearly as well.
Also worth knowing, because it is the most common misunderstanding I correct: driving from home to the place you normally work is personal, even though it feels like work.
Home office expenses for the self-employed
If your home is your principal place of business, or you use a space regularly to meet clients, there is generally a claim available for a portion of your housing costs.
The portion is based on how much of the home the space represents and how much of the time it is used for business. Which means the useful thing to track is boring and physical. Roughly how big the space is, roughly how big the home is, and your housing costs for the year in one place.
There are limits on how this interacts with your business income, so it is worth a conversation rather than a guess.
What changes if you incorporate later
Most of the habits above transfer, but the reasons change.
In a corporation the separation stops being a good idea and becomes a requirement. The company files its own return, money you take out has to be structured as salary or dividends rather than simply withdrawn, and personal expenses running through the business account create a real problem rather than a tidying job.
If incorporating is somewhere on your horizon, the tracking habits you build now are the ones that make that transition straightforward instead of expensive.
Self-employed tax deadlines: June 15 vs. April 30
Self employed returns are due June 15. Any balance owing is due April 30. Those are two different dates and the later one only protects the filing.
Every year I talk to somebody who filed perfectly on June 15 and is paying interest anyway, because the money was due six weeks earlier. It is one of the most misunderstood parts of the self employed tax calendar and it is entirely avoidable.
Sole Proprietor Inquiries:
Now Re-Open!
We paused it for close to a year while we brought on a dedicated Tax Lead to run that work properly, and it is open again now.
Discovery calls are running this fall, and waitlist clients are contacted first!
If your books are a mess, that is not a reason to wait. It is most of the reason to book.
