One of the most common questions we hear from incorporated business owners in British Columbia and Alberta is:
“How much should I be setting aside for taxes?”
It’s an important question. If you don’t set aside enough, tax time can create a cash-flow shock. If you set aside too much, you may be limiting cash that could be used to grow your business.
What Is the Corporate Tax Rate in BC & Alberta?
Most Canadian-controlled private corporations qualify for the small business tax rate on the first $500,000 of active business income.
As a general guide:
- British Columbia: about 11%
- Alberta: about 10%
These rates are lower than many people expect — but the key challenge isn’t the rate itself. It’s planning for when the tax bill is due.
A Simple Rule of Thumb That Works
For most small incorporated businesses in BC or Alberta, we recommend:
- Set aside 20%–25% of your net profits for taxes
This isn’t a precise calculation — it’s a cash-management guideline designed to reduce surprises and protect cash flow.
Why You Should Set Aside More Than Just Corporate Tax?
Even with relatively low corporate tax rates, there are common reasons businesses need extra room:
- Timing differences — taxes are based on profit, not cash collected
- CRA installments — growing businesses may be required to prepay taxes
- Year-end swings — profits often increase late in the year
And while we are focusing on corporate taxes, it’s worth noting:
Funds taken out of the corporation (such as salary or dividends) may trigger personal taxes, which should be planned for separately.
Where Should You Keep Tax Savings?
A simple habit that works well:
- Transfer tax funds into a separate savings account
- Treat it as off-limits operating cash
This alone can prevent many common cash-flow challenges.
Final Thoughts
Tax planning doesn’t need to be complicated to be effective. For incorporated businesses in BC and Alberta, consistently setting aside 20%–25% of profits can provide clarity, stability, and peace of mind throughout the year.
How Eclipse LLP Can Help!
At Eclipse LLP, we work closely with small business owners across British Columbia and Alberta to help them understand their numbers, plan for taxes, and avoid surprises. If you’re unsure whether you’re setting aside the right amount — or simply want a second set of eyes on your approach — a short conversation can often make things much clearer. Reach out to Eclipse LLP to talk through your situation and ensure your tax planning aligns with your business goals.
