Does CRA allow claiming income tax paid a a business expense for a self employed?

Yes.  Just like any other business, the 'wages' expense is supposed to reflect the full amount of the gross wage (net pay + federal income tax + provincial income tax + CPP + EI (employer and employee portion) + vacation pay (whether accrued or paid out) )

https://www.canada.ca/en/revenue-agency/services/tax/businesses/small-businesses-self-employed-income/business-income-tax-reporting/business-expenses/types-operating-expenses.html#slrs

No, Income Tax paid by a sole proprietor is NOT a business expense.  Record as Owner's Draw.

As for the first response -- income tax withheld from wages paid to employees is a "Payroll Source Deduction" and is remitted IN WHOLE to the Canada Revenue Agency.

I am a ProAdvisor and prepare personal income tax returns.

Hi patricioalfaro-m,

Thanks for reaching out. It's important to have accurate information to assist you in the running of your business. I'll be happy to point you in the right direction on this.

Your tax consultant and accountant are incredible resources if you'd like precise info about CRA regulations. In case you don't have an accountant, you can find one on our Find-a-ProAdvisor website

All the best to you.

Hi patricioalfaro-m:

After Buttercup's response, I went and did some more research on the topic.  My business being incorporated, I wasn't really aware of the separate rules governing sole-proprietorships.

In a sole-proprietorship there is little differentiation between the business and the person running the business, so when paying the owner, it should be done as an owner's draw, so as not to reduce the profit of the business.  This is because personal income taxes are paid on the net profit of the business, and are included in the salary paid out via owner's draws.

Once the money is in the owner's hands personally they then need to remit Federal, Provincial, EI, CPP to the government out of that money.  Using the Payroll tax calculator from the CRA can help them do this: https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/payroll-deductions-online-calculator.html

While you're only required to remit annually, it may be easier for cash management purposes - and so not to accidentally spend the money - to make reports and payments in installments.  This can be done via most banking institutions, or directly via the CRA's Netfile system: https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/gst-hst-netfile/gst-hst-netfile-ready-file-online-check-list.html