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In BC virtually anyone can become self-employed and take a shot at being their own boss – unfortunately, there’s no handbook explaining the financial ins and outs. Given the difficulties of starting and maintaining a successful business, it’s no surprise that as Licensed Insolvency Trustees we often meet with business owners who are struggling with business debts simply because they didn’t know the liabilities they were taking on, or what to do when they wanted to wind the business down.

Read on to understand some basics about business debts, common mistakes to avoid making in dealing with business debt, as well as information about getting debt help for small businesses.

Business Debt Basics

Here are some basic components of business debts that you should be aware of since the finances of a business are often interwoven with personal finances of owners and directors which can create unintended consequences.

Types of Businesses

In Canada there are three common types of small business structures and each one has advantages and disadvantages depending on the business owners’ goals and objectives and will have different requirements to set up. An accountant or lawyer can be a great resource for you when setting up your business, helping you weigh the pros and cons of each structure and ensuring you are not missing key setups like licenses, WCB or other insurances.

Sole Proprietorship

A sole proprietorship is the most straight-forward way to start a business or become a contractor. Essentially you (the owner) and the business are the same entity and not legally separated – the assets and debt of your business are also your personal assets and debts.


If two or more people are combining resources in a business they may (but are not necessarily required to) establish formal terms and become a partnership, which is relatively easy to get underway. Each partner is personally responsible for the debts of the business, and they share in liabilities of the actions of the other partners. It’s important to note that this liability may be considered ‘joint and several’ which means that one partner could be liable for any of the debts of the business, regardless of their actual investment in the business.


Incorporating your business takes more time to establish and is often more costly than setting up other types of business structures, but it means that the corporation is a legal entity separate from its shareholders. A limited company, or corporation, is essentially a separate legal “person” and can hold assets, acquire debts and contracts, sue, or be sued.

It is important for business owners to understand that there is virtually no structure that will completely shield you personally from all business debts.

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Common Problem Areas of Business Debts

At any time in business, and particularly in the start-up stages, business owners will often accumulate credit card or line of credit debt used to fund their operations. Be sure to track and retain documentation for all your expenses – not only will you need these for tax filings, you need to be able to understand whether your business is turning a profit versus becoming a liability.

Debts a sole proprietor or partnership accumulate are payable by their owners since there is no distinction between business and owner. While corporations may protect owners from their debts to some degree, there is still a personal liability created for certain debts you cannot avoid becoming personally responsible for such as GST and payroll remittances, employee wages, as well as debts you have personally guaranteed (i.e. committed to pay in the event the company cannot). Some common problem types of business debts owners often face are those owing to the Canada Revenue Agency (CRA).

It’s extremely important for business owners to understand their responsibilities for tax compliance and know clearly what they need to file with CRA. CRA debt is one of the top reasons we see small business owners needing debt help. In addition to general corporate tax debt, some key areas to be aware of are:

Collecting and Remitting GST

  • If your business earns more than $30,000 revenue in a year, you will need to register with CRA, obtain a GST number to file GST returns and make remittances to CRA.
  • There are a small number of professions where this will not apply, but in most cases CRA will assess GST against a self-employed person even if they have failed to register, charge, and collect the GST from their customers.

Payroll Source Deductions

If you pay salaries, wages or give a taxable benefit to an employee, you must take source deductions from that amount, which then need to be reported and remitted to CRA. Source deductions include: CPP contributions, EI premiums and federal and provincial income tax.

  • New employers may be surprised to learn that in addition to withholding source deductions from an employee’s pay, they are also required to pay a share of CPP contributions and EI premiums on those wages.
  • If you’ve had employees previously and then have seasonal workers or no employees in a period, you’ll still need to report a “nil remittance”.

Personal CPP and Income Tax

Newer small business owners often wind up with a tax balance bigger than they were expecting because tax requirements for a self-employed individual may create a higher tax liability than if they had continued to operate as an employee:

  • When you’re self-employed you are required to calculate and remit money payable not only for income tax, but also for CPP.
  • Even if you’re not required to make income tax instalments (i.e. monthly advance payments on your tax bill) throughout the year, consider doing so to avoid the temptation of spending all your profits and having to deal with a big tax balance when you file your return next year.

In addition to unpaid CRA debt, other common areas of debt issues for businesses include:

  • Outstanding wages owed to employees or contractors.
  • Unexpected increase of operating costs such as a rent or supplier increase.

A Licensed Insolvency Trustee can assist you in determining how (and which of) your business debts impact you as an individual, and work with you to get a plan to deal with your business debts. Get debt help – even from the comfort of your home – book your confidential debt consultation now.

How Can a Consumer Proposal or Bankruptcy Help with Tax Debt? Learn More

Business Debt Mistakes to Avoid

Unfortunately, some decisions business owners may make when facing financial difficulties can increase their personal liability – meaning the separation between your corporate and personal dealings is reduced (or eliminated altogether). This is often colloquially referred to as “lifting the corporate veil”. If you find yourself dealing with business debts, avoid making these common mistakes that often compound the problem:

Ignoring Accounting or Planning

Planning cash-flow short-term and long-term is a key piece of your business success. Without it, many self-employed people find they’re overwhelmed with the paperwork needed in even a basic small business and are unprepared for any delays in collecting their accounts receivables, paying employee wages (or themselves), or dealing with inevitable operating cost increases. This can often result in them becoming over-dependent on credit or borrowing to make ends meet.

  • If accounting isn’t your strong suit, hire a reputable accountant or bookkeeper to help you properly claim income and expenses, and manage filing deadlines and payment due dates.
  • Seek legal advice before making major business decisions to ensure you have all the information you need to make the right choices for your company and for yourself as an individual.


Waiting too long to assess your financial situation and options often results in making reactive or unwise decisions that can have serious consequences on your personal (and business) finances. In some cases, options may also become not feasible once too much time has passed, or the circumstances become urgently pressing. To properly consider all strategies available to you as a business owner, it is imperative to be proactive and seek assistance at the onset of financial difficulties.

Injecting Personal Funds

While a business may initially require a personal investment, a business that is running smoothly and viable long-term should not require you to continually inject personal funds. If you are starting to consider (or already taking) these actions, stop and take a closer look at what’s happening in your business:

  • Using personal credit or personal guarantees to cover costs.
  • Being unable to draw a salary/pay yourself.
  • Borrowing money from family or adding them as directors.

Borrowing More

Even if it is possible to obtain more credit, be cautious before doing so. Especially if you are already in a position of having difficulty meeting your current obligations, adding more creditors is unlikely to be the solution. Applying for more credit before fully assessing your business with a professional such as a Licensed Insolvency Trustee can easily result in credit becoming more over-extended, with further unmanageable payment obligations and unmet financial deadlines.

Postponing CRA Payments

Although it can be tempting to defer payments to the government or to use money earmarked for CRA remittances to fund operating expenses – this can have serious consequences, just don’t do it!

  • Filing GST or corporate tax returns late or not paying CRA those funds on time is an easy way to get into financial trouble, likewise for failing to make income tax instalments CRA may require.
    • Interest and penalties are charged daily on these balances.
    • Directors of limited companies are personally liable for some debts with CRA.
  • CRA can employ extreme collection methods if they are left unpaid. It is common for people to experience a bank account freeze, garnishment (yes, self-employment income can be garnished!) or even a charge against their physical property or real estate due to owing CRA.

How Much Does it Cost to Make a Consumer Proposal? Learn More

Where to Get Help with Business Debt

Licensed Insolvency Trustees can help a business owner evaluate their business and decide on how best to deal with both personal and business debts that have accumulated. They are the one debt help professional legally authorized and endorsed by federal and provincial governments to administer powerful solutions to deal with debts from both business and personal perspectives.

A business owner may have several debt solutions open to them such as restructuring via the Companies’ Creditors Arrangement Act, a receivership, a Division I Proposal or Consumer Proposal, or even bankruptcy. Calling a Licensed Insolvency Trustee at the onset of financial challenges can save business owners from draining their personal resources and provide protection from creditors.

There are many factors in addition to your goals as the owner that a Licensed Insolvency Trustee will take into consideration when helping you assess your financial situation and potential options for your small business, including:

  • The type of business structure you are operating and any other key parties involved.
    • For example, if you are operating as a sole proprietor filing a Consumer Proposal or personal bankruptcy may be possible solutions to deal with debts from your business along with any other debts, since your business debts are also your personal obligations.
  • The creditors who are owed money and the type of debt that has been incurred.
    • As noted, not all creditors are created equal – particularly where CRA is owed money.
  • The assets the business holds, its general cash-flow, financial statements, and viability.
    • Owners wishing to avoid a business bankruptcy may be able to work with a Licensed Insolvency Trustee to offer the business creditors a consolidated debt settlement that can greatly reduce balances owing and allow the business to continue to operate.

There is no cost to connect with a BC Licensed Insolvency Trustee to discuss your business debt and confidential consultations can even be conducted from the comfort and privacy of your home.

Ready to talk? We’re here for you and your small business. Book your confidential debt consultation with a non-judgmental debt help expert today.