How Much Should You Save for Taxes?

The Starting Point: Your Marginal Corporate Rate

Before you can estimate how much to save, you need to know your approximate tax rate.

For most Canadian small corporations claiming the Small Business Deduction:

If your taxable income exceeds $500,000, the general corporate rate applies to the excess (~25–28% depending on province).

These are rough guides — your actual rate depends on your specific situation. Your Mesa CPA advisor will give you a precise figure.

A Simple Rule of Thumb

Set aside 15–20% of your net corporate income throughout the year.

This works for most small businesses operating below the $500K small business deduction limit. It accounts for the corporate tax rate plus a small buffer for timing differences.

If your business is more profitable, or if you're approaching or exceeding the $500K limit, set aside more. If your Mesa CPA advisor has given you a specific estimate, use that.

How to Set It Aside Practically

Use a separate savings account. Move the reserve out of your operating chequing account so you're not tempted to spend it. Set a recurring transfer on the first of each month equal to 15–20% of last month's net profit.

Move it when you make a draw. If you pay yourself a dividend, the corporation was profitable — move the tax reserve at the same time you take the dividend.

Don't confuse the corporate tax reserve with GST/HST. GST/HST you collected is not your money. Keep it separate and treat it as untouchable until remittance. The corporate tax reserve is on top of this.

What Can Reduce Your Bill (and Your Reserve Requirement)

CCA claims: Your Mesa CPA advisor may recommend claiming CCA in a profitable year to reduce taxable income. This could meaningfully reduce the bill.

Year-end salary: If the corporation's profits are higher than expected, your advisor may recommend declaring a year-end salary (paid to you before year-end) to reduce corporate taxable income. This shifts income to the personal level — which has its own tax implications.

Legitimate deductions you haven't claimed: Outstanding expenses, home office deductions, vehicle expenses — confirm with your Mesa CPA advisor that everything deductible is being claimed.

FAQ

What if I saved too much?

You'll get a refund or it will be applied to next year's instalments. Over-saving is the better problem to have.

What if I saved too little?

You'll owe the difference at year-end. If your balance owing exceeds what you have available, you'll need to arrange payment to the CRA — possibly with a payment plan, which accrues interest. The goal is to avoid this situation.

Should I also save for GST/HST?

Yes — separately. GST/HST you collect belongs to the CRA from the moment you receive it. Keep it in a separate account and never treat it as operating revenue. A simple approach: every time money comes in, immediately move the GST/HST portion to a dedicated savings account.

Does paying myself a higher salary reduce the corporate tax bill?

Yes — salary is a deductible expense that reduces corporate taxable income. But it increases your personal income tax and CPP obligations. Whether the net effect is beneficial depends on the comparison between your personal marginal rate and the corporate rate. Your Mesa CPA advisor models this as part of year-end planning.