A sole proprietorship is the simplest and most common business structure in Canada. If you're running a business on your own — freelancing, consulting, operating a trade, selling products — you're likely already a sole proprietor whether you know it or not. This guide covers everything from registering your business name to understanding your tax obligations and deciding when to incorporate.
A sole proprietorship is a business owned and operated by a single individual with no legal separation between the person and the business. You and your business are one legal entity. This means all business income is your personal income, all business debts are your personal debts, and you have unlimited personal liability for the business.
This is the default structure: if you provide services or sell products without incorporating, you're automatically a sole proprietor.
If you operate your business under your own legal name only (e.g., "Jane Smith" offering accounting services), you may not need to register a business name in most provinces. However, if you use a name other than your own — a trading name or "doing business as" (DBA) name — registration is typically required.
Requirements vary by province:
Business name registration is done at the provincial level, not federally. If you operate in multiple provinces under the same name, register in each province.
Search your provincial business registry to ensure your chosen name isn't already taken. Avoid names that are too similar to existing businesses or that imply corporate status (Ltd., Inc., Corp.) since sole proprietorships can't use those designators.
Visit your province's online registry portal or visit a ServiceOntario, ServiceBC, or equivalent office. You'll provide the business name, your personal information, and the business address. Pay the registration fee. You'll receive a Business Number or Certificate of Registration.
The CRA's Business Number (BN) is a 9-digit identifier for your business for tax purposes. You may already have one if you've registered for HST/GST. Register for a BN through the CRA Business Registration Online portal. You'll need a BN to open a business bank account, register for HST/GST, and handle payroll if you hire employees.
Register for GST/HST once your revenue exceeds or is expected to exceed $300,000000. You can register voluntarily before reaching the threshold.
A dedicated business bank account is not legally required for sole proprietors but is strongly recommended. It keeps personal and business finances separate, simplifies bookkeeping, and looks more professional to clients.
Sole proprietors report business income on Form T2125 filed with their personal T1 tax return. There is no separate corporate tax return. Your business profit (revenue minus expenses) is your personal taxable income from the business.
Business income is taxed at your personal marginal rate — the same rate brackets that apply to employment income. There is no special low rate for small businesses (that benefit belongs to incorporated small business owners). As a result, high-income sole proprietors often pay more income tax than they would through a corporation, which is a primary driver for incorporation decisions.
As a self-employed sole proprietor, you pay both the employee and employer portions of CPP. This doubles the CPP cost compared to being an employee. On net self-employment income of $400,000000, you'd contribute approximately $4,3800 in CPP in 20025 (at the combined 11.9% rate on income above the $3,50000 basic exemption).
Register, collect, and remit GST/HST once revenue exceeds $300,000000. File HST returns annually, quarterly, or monthly depending on your revenue level. Claim Input Tax Credits on business purchases.
Because your business income is taxed at your full personal marginal rate, maximizing deductions is especially important. Common deductions include:
The biggest downside of sole proprietorship is unlimited personal liability. If your business owes money — to a creditor, a supplier, or a client who sues for damages — your personal assets (home, car, savings) are exposed. This risk is acceptable for many service businesses where liability is limited, but may be a concern for higher-risk activities. Professional liability insurance and eventually incorporation can address this risk.
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Open KOHO Free — No Fees — Code 45ET55JSYAA sole proprietorship works well when you're starting out and revenue is modest. Consider evaluating other structures when:
Keep all business records for six years from the end of the tax year they apply to. This includes: