How Much Should You Save for Taxes? A Simple Guide for Canadian Business Owners
If you’ve ever filed your taxes and thought, “How did I end up owing that much?” - you’re not alone.
This is one of the most common conversations I have with business owners. Not because people are careless or irresponsible, but because the system isn’t exactly designed to be intuitive when you’re self-employed.
No one is automatically taking taxes off your income. There are no employer withholding deductions. And unless you’ve built a system for it, it’s very easy to treat all the money coming into your account as “available.”
It’s not.
This blog will walk you through how much you should realistically save for taxes in Canada, what those taxes actually include, and how to set up a simple system to make this manageable going forward.
Who This Is For (And What You’ll Learn)
This is for you if:
You had a tax bill this year that caught you off guard
You’re setting money aside inconsistently - or not at all
You’re not quite sure what portion of your income actually belongs to you
By the end of this, you’ll understand:
How much to save for income tax and GST/HST
Why your profit matters more than your revenue
A simple system that helps you avoid future surprises
Why This Question Comes Up Every Year
There’s a reason this keeps happening.
When you’re employed, taxes are deducted before you ever see your pay. When you’re self-employed, that responsibility shifts entirely onto you.
And most people aren’t taught how to manage that shift.
A few key things are usually happening:
No tax withheld at source
Profit gets confused with cash flow
Irregular income makes planning harder
This is where things start to unravel.
You might be bringing in good revenue, but that doesn’t mean you actually have that money available; expenses, taxes, and timing all matter.
If you haven’t already, this connects closely to understanding the difference between cash flow and profit - because that misunderstanding is often what leads to under-saving in the first place.
The Two Types of Taxes You Need to Plan For
When people ask how much they should be saving, they’re usually thinking about income tax.
But there are actually two separate things you need to plan for:
1. Income Tax
Income tax is based on your net business income - not your total sales.
That means:
Revenue – Expenses = Profit ← This is what you’re taxed on
Your tax rate will depend on:
Your total income
Your province
Whether you’re incorporated or self-employed
If you want the technical breakdown, the CRA explains this here:Sole proprietorships and partnerships
But here’s the key takeaway:
You don’t pay tax on everything you earn - you pay tax on what’s left after expenses.
2. GST/HST
This is where a lot of people get tripped up.
GST/HST is not your money.
You are collecting it on behalf of the government.
If you charge a client $1,130 in Ontario, that’s:
$1,000 revenue
$130 HST
That $130 does not belong to you - even though it lands in your bank account.
The CRA outlines GST/HST obligations here: GST/HST for businesses.
Treating HST like income is one of the fastest ways to end up short at filing time.
Rule-of-Thumb Percentages (With Some Reality Checks)
Let’s talk numbers - but with context.
These are general estimates, not exact calculations.
Income Tax (Estimates)
For self-employed individuals in Canada, a rough guideline is:
20%–30% of net profit for lower to moderate income
30%–40% of net profit, as income increases
If you’re incorporated, the situation changes depending on:
How much you pay yourself
Corporate tax rates
Whether you’re a CCPC (Canadian-Controlled Private Corporation)
The most important part: Always base your savings on profit - not revenue.
Saving 30% of revenue (rather than profit) will almost always be too much, depending on your expenses.
GST/HST
This part is more straightforward:
5% (GST provinces)
13% (Ontario HST)
15% (some Atlantic provinces)
You should be setting aside 100% of the HST you collect.
Not a portion. Not “most of it.” All of it.
A Simple System That Actually Works
You don’t need anything complicated here.
You need something consistent.
Here’s what I recommend to almost every client:
1. Open a Separate “Tax Savings” Account
This is non-negotiable.
If your tax money sits in your main account, it is more likely to get used. Not because you’re irresponsible - just because it’s there.
Create separation.
2. Transfer Money as It Comes In
Every time you get paid:
Move 100% of HST collected into your tax account (or, if you don’t trust yourself - send it directly to the CRA!)
Move a set percentage for income tax (start with 25%–30% of profit if you’re unsure)
If calculating profit in real-time feels messy, you can:
Use a slightly higher percentage as a buffer
Adjust monthly once your numbers are clearer
3. Review Monthly
Once a month:
Check what you’ve set aside
Compare it to your actual income
Adjust if needed
This doesn’t need to be perfect - it just needs to happen regularly.
4. Use Tools That Remove the Guesswork
If you’ve ever tried to estimate your HST owing manually, you know how quickly it gets confusing.
This is exactly why I created a GST/HST Filing Workbook for it.
Instead of guessing, you can calculate exactly what you owe and how much to set aside.
Instalments: The CRA Rule Most People Don’t Expect
Here’s something that catches a lot of people off guard:
If you owe more than $3,000 in taxes for more than one year, the CRA may require you to start making quarterly installments.
That means:
Paying taxes throughout the year
Instead of one lump sum at filing time
It’s not a penalty - it’s the CRA trying to collect taxes sooner.
But if you’re not prepared for it, it can feel like one.
This is another reason having a system matters - because instalments are much easier to manage when you’ve already been setting money aside.
Common Mistakes (That Are Completely Avoidable)
Let’s call these out clearly:
1. Spending HST
This is the big one.
If HST is sitting in your main account, it’s very easy to treat it like income.
Then filing time comes, and suddenly you’re short thousands.
2. Saving Based on Revenue Instead of Profit
This leads to either:
Over-saving (which restricts your cash flow unnecessarily)
Under-saving (which leads to tax debt)
Neither feels good.
3. Ignoring Instalments
CRA installments don’t go away if you ignore them.
They turn into interest and penalties.
4. Not Adjusting as You Grow
If your business grows, your tax obligations grow too.
What worked last year might not be enough this year.
So… How Much Should You Be Saving?
Here’s the most honest answer:
It depends on your numbers.
But if you want a practical starting point:
Set aside 100% of your HST
Save 25%–30% of your profit for income tax
Review and adjust monthly
That alone will put you ahead of most business owners.
And more importantly, it will take you out of that annual cycle of stress and surprise.
Final Thoughts
Taxes aren’t the problem.
The lack of clarity around them is.
Once you separate what’s yours from what isn’t, and once you build a system that runs in the background, this gets a lot easier.
Not perfect. But manageable.
And that’s really the goal.
Tired of guessing how much to set aside for taxes?
My GST/HST Filing Workbook helps you calculate exactly what you owe - so you can stop over- or under-saving and plan with confidence. It’s designed for Canadian business owners who want clarity without the overwhelm.
Need more support? Reach out HERE to connect with me!