In Canada, the main difference between cash and accrual accounting is the timing of revenue and expense recognition. Accrual accounting records income when earned and expenses when incurred. Cash accounting records them only when cash changes hands. The Canada Revenue Agency (CRA) generally requires accrual, except for farmers, fishers, and certain commissions.
Generally, you have to report business income using the accrual method of accounting. Farmers, fishers, and self-employed commission agents can use the cash method or the accrual method to report income, but not a combination of both.
Accrual accounting and cash basis accounting are two ways to record financial transactions. They differ in when a transaction is recorded: accrual accounting when money is earned or an expense is incurred, and cash basis accounting when money is received or an expense is paid.
Farmers, fishers and self-employed commission agents can use the cash method or the accrual method to report income. All other self-employment income must be reported using the accrual method.
For some small businesses that are not required to use accrual accounting for compliance purposes, sticking to the cash accounting method will simply make more sense. Sometimes, this includes companies that operate with simple cash transactions and have no inventory to account for.
Be aware of tax rules. If you want to switch from accrual-basis to cash-basis accounting or vice versa, you'll need to file Form 3115 with the IRS during the taxable year in which you want to make the change. Depending on certain circumstances, the IRS may not approve the change in accounting method.
Canada's 90% rule helps non-residents and recent immigrants claim full federal tax credits (like the Basic Personal Amount) if 90% or more of their net worldwide income for the relevant tax year is from Canadian sources; otherwise, credits are prorated (reduced) based on their Canadian residency period, ensuring fairness for those who weren't residents all year.
International Financial Reporting Standards (IFRS) The Canadian Accounting Standards Board (AcSB) requires publicly accountable enterprises to use IFRS in the preparation of all interim and annual financial statements.
The IRS also sets restrictions on who can use cash-basis accounting. The following cannot use cash-basis accounting: C corporations or partnerships with average annual gross receipts for the three preceding tax years exceeding $26 million.
Cash Basis vs. Accrual Basis Taxpayer
There are two methods of accounting for GST (goods and services tax), a cash basis and a non-cash basis (accruals). The method you use will affect when you must report GST.
Types of accounting methods
Neither cash nor accrual accounting is universally "better"; the best choice depends on your business size, complexity, and goals, with cash accounting being simpler and good for small businesses, while accrual accounting provides a more accurate, long-term view of financial health, required for larger companies or those seeking funding. Cash method records transactions when cash changes hands, while accrual method records revenue when earned and expenses when incurred, regardless of cash flow.
if a security is transferred with accrued interest, the Accrued Income Scheme treats the additional amount received as income. It is called an 'accrued income profit' and is taxed as interest. if a security is bought with accrued interest, the next interest payment received will be taxable.
Only two types of businesses in Canada can use the cash basis of accounting for tax purposes: farming and fishing operations. All other businesses must file their tax returns using an accrual basis of accounting.
IFRS 9 is probably the most complicated accounting standard ever issued, written to address the accounting weaknesses claimed to have contributed to the global financial crisis and intended to be fit for purpose for the most complex banking and financial services companies.
Canada adopted IFRS in 2011.
The 30% rule restricts Canadian pension funds from investing in securities of a corporation that carry more than 30% of the votes that may be cast to elect directors of the corporation (subject to certain limited exceptions).
For a $70,000 income in Canada (using 2025 rates), you'll pay roughly $13,000 to $20,000 in total taxes (federal, provincial, CPP, EI), depending on your province, resulting in a take-home pay around $50,000-$59,000, with federal tax around 14.5% or 20.5% depending on the portion, plus provincial tax and deductions like CPP and EI.
Once upon a time a $90,000 income was good money. These days, it doesn't go far in many major American cities after accounting for rent, daily essentials and taxes. The good news is that there are a number of large U.S. cities where you can live comfortably on less than $90,000.
The 2.5-Month Rule for accrued expenses, primarily for bonuses, allows accrual-basis taxpayers to deduct compensation in the year it was earned (the prior year) if paid within 2.5 months (by March 15 for calendar years) of the employer's tax year-end, provided the liability was fixed and determinable by year-end and the payment isn't part of a deferred plan, otherwise the deduction shifts to the year of payment. It helps businesses deduct expenses sooner for tax purposes, but it's subject to strict IRS rules, like the "all-events test," and doesn't apply to all accruals or cash-basis taxpayers.
Under the cash basis method, we would record compensation expense when employees are actually paid cash or receive their paycheck. Under the accrual method, we would recognize compensation expense when the compensation is earned and not necessarily paid.
“Small businesses,” as defined by the tax code, are generally eligible to use either cash or accrual accounting for tax purposes. (Some businesses may also be eligible to use various hybrid approaches.)