Canada is not only the second-largest country in the world, but it is also a great place to start a business. According to the World Bank's Doing Business 2018 ranking, Canada is the third-best country in the world in which to start a business. Indeed, for instance, Canada has one of the lowest corporate tax rates in the world (15% in 2019). Furthermore, the economic growth is stable and the country has a skilled workforce.
Self-employment is a status that more and more people are choosing when they come to live in Canada. This article will help you through the steps to become a self-employed professional in Canada.
The general procedure for setting up a business such as the sole proprietorship is the same no matter where you live in Canada. However, there are different details in each province and territory, so keep an eye on that.
Disclaimer: Please bear in mind that this article doesn't substitute legal advice. Information in this article was collected from Canadian government websites and other online resources.
A sole proprietorship is a simple legal structure that allows an individual to set up a business on their own. The business is operated by one person, often called a "self-employed worker" or an "independent contractor" who works alone; therefore the business is not incorporated
With this type of business structure, the business owner doesn't have a separate legal status from their business. The sole proprietor assumes all the risks of the business and has sole responsibility for making decisions, claiming all potential losses, and receiving all generated profits. The sole proprietor needs also to reports their business income on their income tax and benefit return.
Generally, the first step for Canadian business registration is to register the business name in the Register of Businesses, unless you want to operate under your own name. Also, business owners need to register as sole proprietors within the provinces and territories where they want to run their operations (see the paragraph below), since the registration of trade names is a provincial/territorial responsibility. You need to go to the registry of the jurisdiction(s) where you plan to do business. You should check the official website of your provincial or territorial government for specific information and requirements.
Here is an overview of registration procedures in each province:
- Alberta (in Alberta, registering a Business Name can't be done online)
- British Columbia (Name Approval)
- Manitoba (Business Name Registration)
- New Brunswick (Registration of a Business Name)
- Northwest Territories (Business name registration)
- Nova Scotia (Reserving a business name)
- Nunavut (Business registration)
- Ontario (Business Name Registration)
- Prince Edward Island (Business Name Registration)
- Quebec (Register an enterprise)
- Saskatchewan (Name Reservation)
- Yukon (Business Names).
There is an exception to the principle of registering the business name. Indeed, if sole proprietors use their full name with no addition to run their business activities, there is no obligation to register the business name and to follow the rules of registering such as filling an initial declaration, updating declaration, etc. However, be careful not to use additions to legal names such as "Inc.", "Co.", "and Partners/Sons", as that is considered as an actual business name!
Furthermore, sole proprietorships are governed under the provincial and territorial legislation in Canada, so the procedure slightly differs depending on the provinces or territories. For instance, in Newfoundland and Labrador you do not have to register the name of sole proprietorships or partnerships at all. Taxes can also vary from region to region. Nevertheless, in each province or territory, sole proprietors need to complete a form and pay a fee to register their business.
Reporting income as a sole proprietor
From a tax point of view, the money earned as a sole proprietor is considered as personal income. The sole proprietor pays taxes by reporting income or loss on a T1 income tax and benefit return. Because your personal income and business income are one, along with your personal T1 income tax and benefit return, you must file Form T2125 Statement of Business and Professional Activities.
In addition to federal income taxes, you’re also subject to provincial income taxes.
Furthermore, you also need to file a return if you are claiming an income tax refund, a refundable tax credit, a GST/HST credit. You should also file a return if you are entitled to receive provincial tax credits.
Business Number and Canada Revenue Agency
What is exactly the BN?
The BN is a nine-digit number the CRA assigns to your business as a tax ID. It's unique to your business and you will use it to deal with federal, provincial, or local governments.
When do you need a Business Number?
The CRA assigns a BN to your company in case you register for any of the four followings major program accounts needed to operate a business:
- Goods and services tax/harmonized sales tax (GST/HST) in case your business collects GST/HST;
- Payroll deductions in case your business pays employees;
- Corporate income tax in case your business is incorporated;
- Import/export privileges in case your business imports goods or sells goods or services abroad.
Registering for one of these CRA programs will allow you to get a Business Number. The CRA program account will be added to your Business Number if you already have one.
If you don't fall under the four categories above, you don't need a Business Number. Also, if you are a sole proprietor qualified as a Small Supplier (which means that you are making less than $30,000 annually from all your activities), you could operate without a Business Number.