The most common and most straightforward form of business is a sole proprietorship. Simplicity and convenience are favourable when starting a business, but the tax laws in Canada can make it a thorny issue sometimes. Here are some basic tips for navigating your way through the complicated bureaucracy if you're starting a new business endeavour. By definition, a sole proprietorship is an unincorporated business that is owned by one individual and is the most uncomplicated form for a business structure. A sole proprietor is legally identical to their business. Legal obligations about registering a sole proprietorship or its name vary from region to region in Canada.
Do you need to register your business name as a sole proprietor?
If your business name is the same as your legal name, you might not have to register it. Be sure to check with your provincial or territorial business registrar for regulations. If you operate under a name other than your own, you need to register it as either a legal corporate name or trade name. Using your name, plus a word or two for clarification? If your consulting business is called Your Name Consulting, you need to register it as a trade name. You might also consider registering a trademark. You can brand your trade name if you wish. A trademark can also be one or more words, sounds or designs that help distinguish what you have to offer from others. There are three types of trademarks: an ordinary mark, a certification mark, and a distinguishing guise.
An ordinary mark:
May be composed of words, sounds, designs, or any combination thereof
Helps distinguish your goods and services from others.
A certification mark:
Can be licensed to other people or companies
Shows that the goods or services it distinguishes have met a defined standard.
A distinguishing guise:
Refers to the shape of goods or their containers
Can also be a way of presenting, wrapping or packaging an item or service
Helps identify the origin of the product.
A trademark, like your name, helps define your image. It can help direct customers to you, and clarify what makes your business special. It might help you get noticed too!
Do you have to register as a sole proprietor?
The regulations for registering a sole proprietorship fit under provincial and territorial jurisdictions. Thus, it's important to check with the provincial or territorial government for where you plan to run your business, to see what your legal obligations are. Sole proprietors operating in Newfoundland and Labrador do not have to register. Those seeking to operate in other provinces or territories should consult the following sites provided by the CRA, as well as any additional pertinent governmental information. AlbertaBritish ColumbiaManitobaNew BrunswickNorthwest TerritoriesNova ScotiaNunavutOntarioPrince Edward IslandQuebecSaskatchewanYukon Recall that this is not an extensive list. Look for the exact information you need, and remember to check from time to time to see if regulations have changed.
Sole proprietors may need a federal business number and related accounts. Check with local governments for regulations. When you register a business in the following provinces, your federal business number is automatically assigned:
British Columbia
Manitoba
Nova Scotia
Ontario
Saskatchewan
You will need a business number (BN) if you need a CRA program account, or if you need to interact with other federal programs. Some common CRA programs that require accounts are:
GST/HST
Payroll deductions
Corporation income tax
Import-export
A CRA program account is necessary to meet certain tax obligations and to receive some benefits, refunds, and rebates. If your sole proprietorship has no employees and is not required to register for GST/HST, you do not need a CRA program account. If your situation changes and you hire employees or register for GST/HST, you will need to register for two CRA program accounts. Although you may need one or more CRA program accounts, depending on your situation, you only ever need one business number, which has nine digits. You can apply to get a business number online. Use the online method if you need a BN. You can also call 1-800-959-5525 to get a business number and to apply for CRA program accounts. Consult the RC1 form to see the information you need to provide.
Permits and licences
Check with municipal, provincial and federal government sources for licence and permit information. If you make more than $30,000 ($50,000 for public service bodies) per calendar quarter, you might need a GST/HST account. Taxi or rideshare drivers must have a GST/HST account no matter how much they earn. Consult this CRA-approved database for a list of permits and licences you may need. It is searchable by city, municipality, or First Nation. Search by keyword if you're looking for certificates with a specific keyword in the permit name or description.
How much tax do you pay as a sole proprietor?
The amount of income tax you pay depends on your earnings. As a sole proprietor, you will need to file a T1 return. Be sure to check the requirements for your province or territory. You or an authorized representative must report your income or loss on a T1 return if you:
Have to pay tax for the year
Disposed of a capital property or had a taxable capital gain in the year
Have to make Canada Pension Plan/Quebec Pension Plan (CPP/QPP) contributions on self-employed earnings or pensionable earnings for the year
Want to access employment insurance (EI) special benefits for self-employed persons
Received a demand from the CRA to file a return
Plan to claim an income tax refund, a refundable GST/HST credit, or the Canada Child Benefit.
Filing a return will give you access to any provincial tax credits due to you. If you still aren't sure whether you need to file a return, contact the CRA at 1-800-959-5525.
You are not done, yet
Some sole proprietors may be asked to pay their taxes in instalments. A likely situation if self-employed, had no taxes withheld from your earnings, and your taxes owing amount to more than $3000 (or $1800 in Quebec). You may also be required to pay CPP contributions on your income in instalments. Sole proprietors also include financial statements with their return, or a Form T2125, Statement of Business or Professional Activities. Plus, sole proprietors who work in fishing or agriculture may be required to file additional forms (e.g., T2121 for fishing; T2042, T1163, T1164, T1273, or T1274 for farming). A sole proprietorship may be the most straightforward business structure, but Canadian tax law remains as complicated as ever. Stay informed about regulations that cover your business. Check the business registry sections on websites for all three levels of government to make sure your business plays by the rules.
The most common and most straightforward form of business is a sole proprietorship. Simplicity and convenience are favourable when starting a business, but the tax laws in Canada can make it a thorny issue sometimes. Here are some basic tips for navigating your way through the complicated bureaucracy if you're starting a new business endeavour. By definition, a sole proprietorship is an unincorporated business that is owned by one individual and is the most uncomplicated form for a business structure. A sole proprietor is legally identical to their business. Legal obligations about registering a sole proprietorship or its name vary from region to region in Canada.
Do you need to register your business name as a sole proprietor?
If your business name is the same as your legal name, you might not have to register it. Be sure to check with your provincial or territorial business registrar for regulations. If you operate under a name other than your own, you need to register it as either a legal corporate name or trade name. Using your name, plus a word or two for clarification? If your consulting business is called Your Name Consulting, you need to register it as a trade name. You might also consider registering a trademark. You can brand your trade name if you wish. A trademark can also be one or more words, sounds or designs that help distinguish what you have to offer from others. There are three types of trademarks: an ordinary mark, a certification mark, and a distinguishing guise.
An ordinary mark:
May be composed of words, sounds, designs, or any combination thereof
Helps distinguish your goods and services from others.
A certification mark:
Can be licensed to other people or companies
Shows that the goods or services it distinguishes have met a defined standard.
A distinguishing guise:
Refers to the shape of goods or their containers
Can also be a way of presenting, wrapping or packaging an item or service
Helps identify the origin of the product.
A trademark, like your name, helps define your image. It can help direct customers to you, and clarify what makes your business special. It might help you get noticed too!
Do you have to register as a sole proprietor?
The regulations for registering a sole proprietorship fit under provincial and territorial jurisdictions. Thus, it's important to check with the provincial or territorial government for where you plan to run your business, to see what your legal obligations are. Sole proprietors operating in Newfoundland and Labrador do not have to register. Those seeking to operate in other provinces or territories should consult the following sites provided by the CRA, as well as any additional pertinent governmental information. AlbertaBritish ColumbiaManitobaNew BrunswickNorthwest TerritoriesNova ScotiaNunavutOntarioPrince Edward IslandQuebecSaskatchewanYukon Recall that this is not an extensive list. Look for the exact information you need, and remember to check from time to time to see if regulations have changed.
Federal business number and tax accounts
Sole proprietors may need a federal business number and related accounts. Check with local governments for regulations. When you register a business in the following provinces, your federal business number is automatically assigned:
British Columbia
Manitoba
Nova Scotia
Ontario
Saskatchewan
You will need a business number (BN) if you need a CRA program account, or if you need to interact with other federal programs. Some common CRA programs that require accounts are:
GST/HST
Payroll deductions
Corporation income tax
Import-export
A CRA program account is necessary to meet certain tax obligations and to receive some benefits, refunds, and rebates. If your sole proprietorship has no employees and is not required to register for GST/HST, you do not need a CRA program account. If your situation changes and you hire employees or register for GST/HST, you will need to register for two CRA program accounts. Although you may need one or more CRA program accounts, depending on your situation, you only ever need one business number, which has nine digits. You can apply to get a business number online. Use the online method if you need a BN. You can also call 1-800-959-5525 to get a business number and to apply for CRA program accounts. Consult the RC1 form to see the information you need to provide.
Permits and licences
Check with municipal, provincial and federal government sources for licence and permit information. If you make more than $30,000 ($50,000 for public service bodies) per calendar quarter, you might need a GST/HST account. Taxi or rideshare drivers must have a GST/HST account no matter how much they earn. Consult this CRA-approved database for a list of permits and licences you may need. It is searchable by city, municipality, or First Nation. Search by keyword if you're looking for certificates with a specific keyword in the permit name or description.
How much tax do you pay as a sole proprietor?
The amount of income tax you pay depends on your earnings. As a sole proprietor, you will need to file a T1 return. Be sure to check the requirements for your province or territory. You or an authorized representative must report your income or loss on a T1 return if you:
Have to pay tax for the year
Disposed of a capital property or had a taxable capital gain in the year
Have to make Canada Pension Plan/Quebec Pension Plan (CPP/QPP) contributions on self-employed earnings or pensionable earnings for the year
Want to access employment insurance (EI) special benefits for self-employed persons
Received a demand from the CRA to file a return
Plan to claim an income tax refund, a refundable GST/HST credit, or the Canada Child Benefit.
Filing a return will give you access to any provincial tax credits due to you. If you still aren't sure whether you need to file a return, contact the CRA at 1-800-959-5525.
You are not done, yet
Some sole proprietors may be asked to pay their taxes in instalments. A likely situation if self-employed, had no taxes withheld from your earnings, and your taxes owing amount to more than $3000 (or $1800 in Quebec). You may also be required to pay CPP contributions on your income in instalments. Sole proprietors also include financial statements with their return, or a Form T2125, Statement of Business or Professional Activities. Plus, sole proprietors who work in fishing or agriculture may be required to file additional forms (e.g., T2121 for fishing; T2042, T1163, T1164, T1273, or T1274 for farming). A sole proprietorship may be the most straightforward business structure, but Canadian tax law remains as complicated as ever. Stay informed about regulations that cover your business. Check the business registry sections on websites for all three levels of government to make sure your business plays by the rules.
