If you're a sole proprietor, you can't put yourself on payroll. You pay yourself by moving money from the business account to your personal account, which bookkeepers call an owner draw (or drawings). Draws are simple, but they cause a surprising amount of confusion: owners expense them, forget they're not taxed on them, or mix personal spending into the business account until the books are unreadable.
This guide explains what owner draws are, why they aren't deductible, how you're actually taxed, how to set aside money for income tax and CPP, how to handle personal expenses paid from the business account, and how to keep business and personal finances separate. It's based on CRA's guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income, CRA's pages on CPP contributions for self-employed people and instalments. It includes worked examples, journal entries and common mistakes.
For a sole proprietor, the business and the owner are legally the same person. Money in the business account is already yours. A draw just moves it to your personal account.
| Transaction | Account | Effect |
|---|---|---|
| Owner transfers $3,000 to personal account | Owner's drawings (equity) | Reduces equity; no expense |
| Owner puts $2,000 into the business | Owner's contributions (equity) | Increases equity; not income |
Draws appear in the equity section of the balance sheet, not on the income statement.
| Account | Debit | Credit |
|---|---|---|
| Owner's drawings | $3,000 | |
| Bank – business | $3,000 |
Sole proprietors are taxed on the business's net income (revenue minus deductible expenses), reported on Form T2125 with your personal T1 return. Whether you take out all of the profit, none of it, or more than it, your tax is based on net income, not on draws.
You also can't pay yourself a salary as a sole proprietor and deduct it. CRA's T4002 guide notes that you can't deduct drawings or salary paid to yourself. You can pay a reasonable wage to a spouse or child who actually works in the business, through payroll, but not to yourself.
Example numbers for illustration only.
| Item | Amount |
|---|---|
| Revenue | $140,000 |
| Deductible business expenses | $60,000 |
| Net business income (taxable) | $80,000 |
| Owner draws during the year | $60,000 |
| Money left in the business account | $20,000 |
The owner is taxed on $80,000, not $60,000. If the owner had drawn $95,000, they'd still be taxed on $80,000, and the extra $15,000 would come from money already in the business or from contributions.
As a sole proprietor, your net business income attracts:
Half of your CPP contributions (the employer share) is deductible; the employee share gives you a non-refundable tax credit.
Example numbers for illustration only, using the 2026 base figures above.
| Item | Amount |
|---|---|
| Net self-employment earnings | $80,000 |
| Capped at YMPE | $74,600 |
| Less basic exemption | −$3,500 |
| Pensionable earnings | $71,100 |
| Base CPP at 11.9% | $8,460.90 |
Earnings above $74,600 ($5,400 here) may also attract CPP2. Your tax software or accountant will calculate the exact amount.
The biggest risk with draws is spending the money you'll owe CRA in April. A simple approach is to transfer a fixed percentage of every deposit, or of monthly profit, into a separate tax savings account.
Example numbers for illustration only.
| Item | Amount |
|---|---|
| Monthly net profit | $6,000 |
| Set aside 30% for income tax and CPP | $1,800 |
| Available for draws | $4,200 |
| Annual tax reserve (12 × $1,800) | $21,600 |
Your actual tax depends on your province, other income, deductions and credits. Ask your accountant for a percentage that fits.
Transfers to a tax savings account in your own name are also draws if the account is personal. If it's a second business account, they're just transfers between bank accounts.
If your net tax owing is more than $3,000 (or $1,800 in Quebec) in the current year and in either of the two previous years, CRA generally expects you to pay quarterly instalments on March 15, June 15, September 15 and December 15. Instalment payments are personal tax payments, so record them as draws if paid from the business account, not as business expenses.
It happens: groceries on the business card, a personal phone bill, a family trip. Record these as draws, not expenses.
| Payment from business account | Correct account |
|---|---|
| Personal groceries | Owner's drawings |
| Personal income tax or instalments | Owner's drawings |
| RRSP contribution | Owner's drawings |
| Personal portion of a mixed-use phone bill | Owner's drawings |
| Business portion of phone bill | Telephone expense |
Example numbers for illustration only.
| Item | Amount |
|---|---|
| Monthly phone bill (before tax) | $100 |
| Business use (documented) | 60% |
| Telephone expense | $60 |
| Owner's drawings | $40 |
If you're registered for GST/HST, claim ITCs only on the business portion.
The reverse also happens: you pay a business expense with your personal card, or lend the business money. Record the expense and credit owner's contributions. Contributions aren't income.
| Account | Debit | Credit |
|---|---|---|
| Office supplies | $250 | |
| Owner's contributions | $250 |
Sole proprietors aren't legally required to have a separate business bank account, but it makes bookkeeping much easier and helps if CRA asks questions. Use:
GST/HST collected from customers isn't your money, even though it sits in your business account. Before you take a draw, subtract the GST/HST you'll owe on your next return. A business that draws out "profit" including the collected tax can't pay the filing. A simple fix is to move the net GST/HST collected into the tax savings account along with the income tax reserve.
Example numbers for illustration only.
| Item | Amount |
|---|---|
| HST collected this quarter | $6,500 |
| ITCs on business purchases | −$1,900 |
| Net HST to set aside | $4,600 |
Wages to a spouse, common-law partner or child are deductible only if they actually work in the business and the pay is reasonable for the work done, what you'd pay a stranger for the same job. Run their pay through payroll, withhold income tax and CPP, and issue a T4. EI may not apply to related employees in some cases, so check CRA's guidance on insurable employment. Money given to a family member who doesn't work in the business is a draw, not a wage.
When you apply for a mortgage, lease or business loan, lenders usually look at your net income on your T1 returns (often two years), not your draws. Writing off personal expenses or lowering net income aggressively can reduce what you qualify for. Clean books with draws separated make your financials easier for a lender to understand.
At year-end, the drawings and contributions accounts are closed into owner's equity (capital), along with net income.
Example numbers for illustration only.
| Item | Amount |
|---|---|
| Opening owner's equity | $15,000 |
| Add net income | $80,000 |
| Add contributions | $2,000 |
| Less draws | −$60,000 |
| Closing owner's equity | $37,000 |
Equity that keeps shrinking year after year means you're drawing more than the business earns.
When profits rise above what you need to live on, some owners consider incorporating. A corporation pays its own tax, and you pay yourself through salary or dividends, which changes the picture. This is a tax planning question with tradeoffs, so speak with an accountant before deciding.
| Step | Done? |
|---|---|
| Record every transfer to personal as a draw | |
| Recode personal purchases on business accounts to draws | |
| Record personally paid business expenses as contributions | |
| Transfer the tax reserve | |
| Record instalments as draws | |
| Review equity balance |
According to its website, Accelo Bookkeeping assigns a dedicated bookkeeper who categorizes transactions every month. The uncategorized lines workflow lets you tell your bookkeeper which charges were personal and which were business. A reviewer closes each month, and you get year-end tax-ready financials for your accountant (Accelo doesn't file tax returns). Starter is $199/month with the first month free, for businesses under 100 transactions a month; Growth is $349/month. Nothing renews on its own. See Accelo pricing.
No. You take draws, which aren't deductible. You can pay a reasonable wage to a spouse or child who actually works in the business.
Not directly. You're taxed on the business's net income, whatever you draw.
It depends on your income and province. Many owners set aside a fixed percentage; ask your accountant for yours.
No. Record them as draws.
It's not legally required for sole proprietors, but it's strongly recommended.
Paying yourself as a sole proprietor is easy; recording it right takes a little discipline. Treat transfers as draws, set aside money for tax and CPP, recode personal spending, and keep accounts separate. Review your equity balance at least quarterly so you know whether you're drawing more than the business earns, and talk to your accountant before profits outgrow the sole proprietor structure. For monthly books that keep draws and expenses straight, start with Accelo Bookkeeping.