The start of a new year is a critical time for Canadian business owners. It’s when financial plans are set, budgets are finalized, and tax strategies should be reviewed. Unfortunately, it’s also when many businesses unknowingly make tax mistakes that can lead to higher tax bills, cash-flow strain, and avoidable CRA issues later in the year.
At Koroll & Company, we often see the same early-year missteps repeated across small and mid-sized businesses. Understanding these common mistakes — and how to avoid them — can put your business on much firmer financial footing for the year ahead.
1. Treating Tax Planning as a Year-End Activity Only
One of the biggest misconceptions among business owners is that tax planning happens in December. In reality, the most effective tax planning happens early in the year, when there is still time to adjust strategies.
Waiting until year-end limits your options. Decisions about income timing, asset purchases, compensation structure, and dividends are far more powerful when planned months in advance. Starting the year without a tax plan often results in missed deductions and higher taxes than necessary.
2. Not Reviewing Changes to Tax Rules and Thresholds
Tax rules, credits, and thresholds change frequently at both the federal and provincial levels. Business owners who assume “nothing has changed” may overlook important updates affecting:
- Small business tax rates
- Payroll remittance thresholds
- Capital cost allowance (CCA) rules
- HST filing and reporting requirements
Failing to account for these changes early in the year can lead to under- or over-remitting taxes — both of which can create cash-flow challenges or CRA penalties.
3. Mixing Personal and Business Finances
At the start of the year, many business owners continue operating with poor separation between personal and business finances. This is especially common among sole proprietors and early-stage incorporated businesses.
Mixing expenses complicates bookkeeping, increases the risk of missed deductions, and raises red flags during CRA reviews. It also makes tax planning far more difficult, as clean financial data is essential for accurate reporting and forecasting.
A separate business bank account and credit card are simple steps that significantly improve tax compliance and financial clarity.
4. Mismanaging Payroll and Owner Compensation
Payroll errors often show up early in the year, particularly when businesses adjust salaries or add employees.
Common payroll-related tax mistakes include:
- Incorrect CPP or EI calculations
- Missing payroll remittance deadlines
- Not reassessing whether salary or dividends are the most tax-efficient option for owner-managers
Choosing the wrong compensation mix can result in higher personal and corporate taxes over the year. Reviewing payroll and owner compensation in January allows time to make adjustments before errors compound.
5. Overlooking HST Obligations
HST compliance continues to be a major issue for Canadian businesses. At the start of the year, some business owners forget to:
- Reassess whether they should be registered for HST
- Adjust filing frequency based on revenue changes
- Set aside collected HST instead of using it for operating cash
Using HST funds to cover expenses can create serious cash-flow problems when remittance deadlines arrive. Proper planning ensures HST is treated as a liability — not income.
6. Ignoring Instalment Requirements
Many business owners are surprised to learn they are required to make tax installment payments throughout the year. Missing or underpaying installments can result in interest charges from the CRA.
January is the ideal time to confirm whether instalments apply and to build them into your cash-flow forecast. This proactive approach prevents unpleasant surprises and helps stabilize monthly finances.
7. Poor Record-Keeping from Day One
Strong bookkeeping habits must start at the beginning of the year — not months later during tax season. Delayed or incomplete records often lead to:
- Missed deductions
- Inaccurate financial statements
- Increased accounting costs at year-end
Consistent bookkeeping allows business owners to monitor performance, identify issues early, and support tax-efficient decision-making throughout the year.
8. Not Consulting an Accountant Early Enough
Perhaps the most common mistake is waiting too long to involve a professional. Many business owners reach out to their accountant only when a problem arises — or just before filing deadlines.
Meeting with your accountant early in the year allows for:
- Proactive tax planning
- Better cash-flow forecasting
- Strategic guidance tailored to your business goals
At Koroll & Company, we work with Ontario business owners to move beyond compliance and toward smarter, more strategic financial management.
Start the Year Right
Avoiding these common tax mistakes can save your business time, money, and stress. The beginning of the year is your opportunity to plan ahead, improve financial systems, and make informed tax decisions that benefit you all year long.
If you’d like support with tax planning, bookkeeping, payroll, or business advisory services, Koroll & Company is here to help. A proactive conversation now can make a meaningful difference by year-end.
