Canada’s tax system is a double-edged sword for small businesses and startups.
While these businesses drive nearly half the country’s gross domestic product, many struggle to navigate the system’s complexities, especially as rules and requirements continue to evolve.
“There’s an opportunity for us as an ecosystem and as a country to make the process clearer for business owners.”
Faye Pang, FreshBooks
It’s no surprise, then, that many are putting off tax prep. A new FreshBooks survey on small business tax trends found that small business owners are delaying their filings, which can lead to missed opportunities.
Faye Pang, Chief Growth Officer at FreshBooks, believes the identified challenges small business owners face around taxes are a relevant point of discussion across markets.
“Canada’s multi-layered tax system, with both federal and provincial regulations, can indeed create a confidence gap,” Pang said. “However, by embracing proactive strategies and leveraging available resources, small business owners can transform tax preparation from a burden into a strategic advantage.”
The gap between planners and procrastinators
FreshBooks’ data highlights a common problem: taxes are often treated like that persistent notification you keep swiping away—always hovering, slightly stressful, and impossible to ignore forever. And just like those ignored notifications, procrastinating on taxes can cost small business owners more than they realize.
There’s a spectrum of approaches to tax planning, with some small business owners treating it as a year-round process and others scrambling at the last minute. While a significant portion of respondents claim to start early (78 percent), many still delay the process.
Younger small business owners, particularly Gen-Z are more likely to delay tax prep. More than half of Gen Z self-employed respondents wait until the deadline is imminent. However, this trend presents an opportunity for education and early adoption of effective tax management practices.
In Canada, the problem runs deeper than habit. A 2021 survey found that 60 percent of Canadians had not filed their taxes by late March, and nearly half of small business owners say financial literacy gaps have hurt their bottom line.
“Small business owners excel at running their businesses, but they’re typically not financial experts,” said Pang. “This underscores the need for accessible resources and tools that simplify tax management.”
Addressing complexity and leveraging resources
For early-stage startups, Canada’s tax system can seem like a maze. Federal and provincial rules stack on top of each other, deductions come with strings attached, and key incentives like SR&ED tax credits require careful attention. A missed deadline or small oversight can mean leaving capital on the table.
Pang acknowledged that recent shifts in Canada’s tax policy, such as the modified capital gains tax rule, have also caused significant confusion.
“The modified capital gains tax rule has led to considerable work, rework, and uncertainty, further eroding the confidence of small business owners and leaving them unclear about their future tax obligations,” Pang said. “These changes also highlight the importance of staying informed and seeking expert guidance,” she added.
FreshBooks’ survey found that 35 percent of small business owners struggle with the complexity of tax laws, and 32 percent struggle to identify deductions. These uncertainties can lead to missed incentives, which can end up shaping key decisions, including hiring, fundraising, and pricing.
According to Pang, procrastination is often a symptom of a system that demands expertise, but doesn’t offer the resources to build it.
“There’s an opportunity for us as an ecosystem and as a country to make the process clearer for business owners, by providing clearer guidance and making that information more accessible about eligibility to help small business owners really break down the process,” Pang added.
Systemizing it
Many business owners are turning to software to bridge the confidence gap during tax season. FreshBooks found that 35 percent use tax software, while a growing number rely on AI-driven bookkeeping tools to stay organized year-round.
For Pang, that number is still far too low.
“That stat is steadily ticking up in my mind, far too slowly,” she said. “The reality is that two-thirds of small business owners aren’t adopting available technology solutions designed to simplify financial processes, leading them to miss out on efficiency gains and potentially higher profits.”
Pang believes startups need to think about tax strategy not as an annual fire drill driven by the fear of audits and penalties, but as an ongoing process optimized with the right tools.
“We believe a simple and really powerful shift is simply integrating technology into financial tracking, not just at tax time, but throughout the entirety of the year,” she said.
FreshBooks aims to simplify tax prep by automating expense tracking, categorizing transactions, and generating tax-ready reports for small businesses. It syncs with bank accounts to minimize manual entry, captures receipts digitally, and streamlines invoicing, while its financial reporting and payment tools help small business owners stay organized.
“It makes that pile of work at tax time much smaller,” Pang added.
The businesses that systemize tax preparation, she said, are the ones that stay compliant while freeing up time, capital, and headspace for growth.
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Read the full FreshBooks report here, and learn more about how FreshBooks helps small businesses stay on top of their finances.
All photos provided by FreshBooks.