A sole proprietor transfers $1,500 from the business account to pay household bills. Labelling the transfer "salary" in banking software does not make it an employee wage expense.
Record the withdrawal as an owner draw
CRA does not allow a deduction for salaries or drawings paid to the proprietor or partners. The business's net income is not reduced simply because its owner takes money out. CRA's business-expense guidance.
If the business earns $6,000 and has $2,000 of deductible expenses in a simplified period, its profit is $4,000 before other tax adjustments. Taking out $1,500 does not turn that profit into $2,500. Leaving all the money in the account would not make the profit disappear either.
Separate the three kinds of movement
- A customer payment settles a sale or receivable.
- A genuine business expense needs its own invoice and business purpose.
- An owner withdrawal moves funds to personal use.
Personal funds added to the business are a different category again: an owner contribution. Keep these identifiable so deposits do not inflate sales and withdrawals do not inflate expenses. CRA explains drawings and capital contributions on Form T2125.
A monthly transfer plan can make household budgeting easier, but it is a cash-management habit, not a deduction method. Base it on actual cash needs, upcoming bills and tax obligations rather than the largest balance seen during the month.
An incorporated business is different: salary, dividends and shareholder transactions need their own treatment. Do not apply this sole-proprietor example to a corporation.
Checked October 20, 2026. For a full movement-of-cash example, read bank balance versus profit.
