Business Accounts in Canada

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Luisa Rollenhagen

Luisa Rollenhagen is a journalist and investor who writes about financial planning for Wealthsimple. She is a past winner of the David James Burrell Prize for journalistic achievement and her work has been published in GQ Magazine and BuzzFeed. Luisa earned her M.A. in Journalism at New York University and is now based in Berlin, Germany.

Katherine Gustafson is an author and personal finance expert from Portland, Oregon. She writes about investing for Wealthsimple as well as having written for Forbes, Business Insider, TechCrunch, and LendingTree. Katherine is a past recipient of the Izzy Award for outstanding achievement in independent media. She has a BA from Amherst College and an MA from Boston University.

Here at Wealthsimple,we discuss the many ways you can make smart financial choices for your future and your goals. That can include anything from building sustainable saving habits to planning for retirement. Just like you need your personal checking account to pay for your groceries or your late-night Amazon spree, a business needs access to cash to pay for daily expenses and react quickly to any problems or new developments. That’s where a business account comes in.

A business account gives specifically authorized individuals access to the funds in the account, but it belongs to the business itself and all transactions are part of a business’s financial activities. The point is to keep clear, separate financial records of a business’ expenses and incomes.

Business banking becomes particularly important once tax season rolls around. And if you’re the owner of a small business or a freelancer, keeping a separate account that’s strictly business will save you a lot of headaches once you’re trying to file your individual and business taxes.

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In addition to keeping track of expenses and income, business accounts are also help a small business keep track of money owed to creditors, money owed to the business, and payroll, if the business has any employees.

Business account versus personal account

While business banking accounts and personal checking accounts operate on the same principles, there are a few key differences that separate the requirements for opening a personal account from those for a business account:

Documentation

In order to open any type of financial account, whether personal or for a small business, you’ll need some sort of documentation to prove your identity. For a personal account, that usually just requires some form of ID, like a passport or driver’s license, and some personal information, such as your address and occupation.

For a business account, you’ll need to go beyond that. Financial institutions that offer business accounts will usually ask for official documentation that proves that the business actually exists. That means you’ll need records such as a business license, a business tax ID, and anything else that confirms the legitimacy of your business.

Fees

Personal financial accounts, especially if they’re online-only, will have very low fees (or none at all). But even if you’re opening a financial account at a brick-and-mortar bank, you’ll usually pay pretty low monthly fees, and in some cases, you can even get fees waived (as is the case with student accounts, for example).

But because business accounts are dealing with a much higher volume of transactions, and they’re usually holding greater amounts of money, the fees for a business account will often be higher. A small business bank account may also charge higher fees for things like transactions or cash withdrawals or deposits that exceed their limits.

Managing credit

A business bank account gives you more flexibility when it comes to things like credit and managing how you receive payments. A business bank account can also come with a corporate credit card, which will usually have a higher credit limit than individual credit cards, and a business checking account will allow you to accept payments in credit, among other things.

Types of business accounts

There are a number of different business bank accounts that a small business can open, according to financial needs and to the scope of the particular businesses. Businesses often opt to open multiple business bank accounts to cover different financial needs.

Checking account

A business checking account fulfills the same purpose as a personal checking account—it’s primarily there to hold cash needed for everyday expenses. Although several individuals can be authorized to access a business checking account and withdraw from or deposit in it, the account belongs to the business under which it’s registered.

A business checking account is helpful for keeping business expenses and other financial records all in one place. This is particularly important for tax purposes since a business account should always be kept separate from a personal checking account to avoid any accounting tax headaches. A business checking account will also let you accept payments in credit and add legitimacy and professionalism to your enterprise.

Savings account

As is the case with a checking account, a business savings account operates similarly to a personal savings account. Money kept in a savings account will earn a small amount of interest since the funds in the account are essentially being borrowed by the financial institution. Personal savings accounts tend to have very low interest rates (unless you choose a high-interest savings account), and business savings accounts usually follow the same pattern.

Business savings accounts also tend to have higher account minimums than personal savings accounts. However, businesses still tend to use them as an integral part of a savings and growth strategy.

Investing account

For businesses that want to grow their savings beyond the interest rates offered in a savings account (or don’t want to let surplus funds get eaten away by inflation in a checking account), a business investing account can be a smart choice. A corporate investing account invests in GICs, mutual funds, stocks and bonds, and ETFs in order to grow your money. Opening a business investing account can also be beneficial for businesses that might expect to weather some good years and bad years.

However, the difference between a business investing account and a checking or savings account is that the tax rate on withdrawals from corporate investing accounts are much higher than for other accounts. So it makes sense for businesses to keep the funds they need quick access to in a checking account.

GRSP

A Group Registered Retirement Savings Plan (GRSP) is similar to an individual RRSP, but set up by an employer for their employees as a workplace benefit. Employers offer the plan because their own contributions are tax-deductible, and the plan acts as an incentive for new hires.

How to open a business account

The requirements to open a business bank account in Canada vary by banking institution. The best business bank account will allow you to set it up easily and not cost a lot to maintain and use. To open a business account, choose the bank or financial institution that offers a good account structure, such as low or no minimum monthly balance required, no transaction fees, low or no limit on monthly transactions, and no minimum number of transactions per month. Look for an account that allows unlimited electronic transactions.

To open the account, follow the financial institution’s process. This can often be done online, and you may be able to get approval very quickly. The bank or financial institution will require you to show documentation—at the very least proof of your business entity and personal information or identification. The bank may also require that you show some of your business financial information to see if you qualify for a specific type of account.

Advantages of business bank accounts

While business bank accounts usually come with higher fees and more restrictions than personal accounts, they’re an invaluable management tool for businesses of any size.

Protecting your own finances

This point is especially important if you’re a small business owner or a freelancer. We’ve talked before about the importance of keeping personal and business finances separate in order to avoid tax mishaps down the line, but there’s another important reason for this: if your business goes bankrupt and you don’t have liability protection and you’ve combined personal and business finances, it’s very possible that creditors will go after your personal assets when collecting on a debt. You could also increase your risk of an audit due to inaccurate business deductions. So always keep a firm line drawn between the finances of your business and those of your personal life.

Keeping track of financial records

A business bank account will help you keep track of what exactly your business is spending, how much it’s earning, how much your business is owed, and how much your business owes. This will help you identify profit margins, and is particularly helpful come tax season, when you might be eligible for significant tax breaks that you’d otherwise miss out on because of incomplete bookkeeping. Depending on what kind of business yours is, you might even be legally required to have business accounts (as is the case with LLCs and corporations).

Accept credit payments

A business account—especially a checking account—will allow you to accept credit card payments, which could significantly bolster the reach and accessibility of your business and increase your pool of customers/clients.

Multiple account signers

By authorizing multiple people to have administrative access to accounts like a business checking account, a business can effectively delegate administrative financial tasks to various employees and save time and effort.

Perks such as business credit cards

Depending on how large a business is, it may be eligible for a business credit card. Business credit cards offer a certain level of flexibility, especially if the business has employees that need to travel or pay for things such as meals, which are costs that all fall under business expenses but which employees sometimes pay for themselves before getting reimbursed. It’s just more convenient for everyone involved when the employee can put that business dinner with clients on the business credit card, where it’s immediately filed away as a business expense, instead of having to put their own card down and then waiting a month or so for reimbursement.

Asserts professionalism and legitimacy

Ultimately, a business account, whether it’s a checking, savings, or investment account, asserts a certain level of professionalism and legitimacy that is important for a business to present. Branded checks, a business checking and credit card, and clearly separated financial records can help establish a business as functioning, profitable, and legitimate, and can attract more clients.

Frequently Asked Questions

You are allowed to set up a business account as a sole proprietor, though it isn’t legally required. Doing so is a good idea because it is best to keep your business and personal expenses separate for tax and bookkeeping purposes.

Last Updated July 12, 2022

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