Starting a business in Canada: sole proprietorship or incorporation? Plus your Business Number, sales tax and licences

The easiest way to start a small business in Canada is a sole proprietorship: you work under your own name, report the profit on your personal tax return, and don't register for GST/HST until your taxable revenue exceeds $30,000 over four consecutive calendar quarters. Federal incorporation costs $200 online, and a provincial corporation in Ontario costs $300. Incorporating gives the business a legal identity separate from yours, in exchange for heavier paperwork and accounting.

This guide is general information, not legal or tax advice. Choosing a legal structure is worth a meeting with an accountant or a lawyer.

Sole proprietorship or corporation?

The key difference is liability. In a sole proprietorship, you and the business are one and the same in law, so the risks and debts of the business extend to your personal money and property. Incorporation creates a legal entity separate from its owners and, as a rule, protects them from personal liability for the corporation's debts.

The 9% federal rate applies to a Canadian-controlled private corporation that claims the small business deduction, usually on the first $500,000 of active business income, with provincial tax added on top. But that number alone doesn't settle the question: the money you take out of the corporation for yourself is taxed again in your hands. That's why you compare the total cost with an accountant, not the corporate rate on its own. You'll find one in our accountants directory.

Federal or provincial incorporation?

Federal incorporation with Corporations Canada gives you the right to operate under one name across Canada. It costs $200 online, with a rush option for an extra $100, and there's a $12 fee for each annual return. You don't need a Nuans report in advance if you incorporate online with a word-based name, because the name search is now part of the process.

A federal corporation isn't exempt from provincial rules, though: each province's laws require you to register it in every province or territory where you carry on business. This extra-provincial registration happens automatically when you incorporate in Ontario, Nova Scotia, and Newfoundland and Labrador, but confirm it directly with the province.

For a federal corporation, at least a quarter of the directors must be "resident Canadians", meaning citizens or permanent residents. If the board has fewer than four directors, one resident Canadian is enough. This is worth noting if you're still on a work or study permit.

Provincial incorporation suits someone who operates in one province only. In Ontario, it costs $300 through the Ontario Business Registry. Before you decide, read about your province on our Ontario or Quebec page.

Registering a business name for a sole proprietorship

Most businesses register with their province, but if you operate under your own name you may not need to register in some cases. The rules differ from province to province:

• Ontario: registering a business name for a sole proprietorship costs $60 online, and comes with a nine-digit Ontario Business Identification Number (BIN), which is not the same as the federal Business Number (BN).
• Quebec: you must register with the Registraire des entreprises if you operate under a name that doesn't include your first and last name; registration is optional if you operate under your full name.

The Business Number: when do you need one?

A corporation always needs a Business Number, and gets one automatically when it incorporates federally or in several provinces, including Ontario, Alberta and British Columbia. A sole proprietorship only needs one when it opens a CRA program account, such as a GST/HST account, or a payroll account if you hire someone.

To register, you'll need the owner's name and social insurance number, the legal and operating names, the mailing and physical addresses, and a description of the main business activity and its products. If you don't have a SIN yet, start with our guide to the SIN.

GST/HST and the $30,000 threshold

You're a "small supplier" as long as your taxable revenue doesn't exceed $30,000 over four consecutive calendar quarters. The rule works two ways:

• If you go over $30,000 in a single quarter, you're considered registered from the day of the sale that took you over the threshold.
• If you go over it across several quarters, you stop being a small supplier on the last day of the following month, and you must register before your next sale after that.

Either way, you have 29 days from the day you're considered registered to apply. You can also register voluntarily before you reach the threshold, which lets you claim back the tax you pay on your purchases in exchange for charging it to your customers. Rideshare and taxi drivers can't use the small supplier threshold: they must register from the first dollar.

In Quebec, Revenu Québec administers the GST/HST for businesses located there.

Municipal licences and insurance

Registering a business isn't a licence to operate. Many businesses, such as restaurants, barbershops, transport and construction, need licences and permits from the municipality or the province, and may need health permits or zoning approval for the premises. BizPaL, a free government tool shared by the federal, provincial and municipal governments, shows you the licences you need based on the type of business and its location.

There's no single insurance figure that fits everyone: third-party liability insurance, equipment and inventory insurance, and commercial auto insurance if you use a vehicle for work. Compare quotes through an insurance broker from our insurance directory. If a commercial lease or partnership agreement carries major obligations, review it with a lawyer from our lawyers directory before you sign.

Support programs: who qualifies for BDC and Futurpreneur?

Note two things: Futurpreneur doesn't accept temporary work permit holders, because it requires citizenship or permanent residence, and BDC start-up financing doesn't fund an idea that hasn't launched yet. Both are loans that must be repaid, not grants, and your credit history affects the decision, so start building your credit score early.

The practical order of steps

1. Test the idea before the paperwork: a sole proprietorship lets you start at the lowest cost, and you can incorporate later if the business grows.
2. Choose a legal structure: sole proprietorship, provincial corporation or federal corporation, after a meeting with an accountant.
3. Register the name or the corporation: with your province or with Corporations Canada, and register a federal corporation in every province where you operate.
4. Open CRA accounts when you need them: the Business Number, then GST/HST before you pass the threshold (or voluntarily), and payroll if you hire someone.
5. Look up the licences: through BizPaL and your municipality, before you sign a lease on premises.
6. Keep the money separate: a dedicated business bank account makes bookkeeping and filing easier; you can start with our guide to opening a bank account.
7. Insure the business: before your first customer, not after your first problem.

This order isn't mandatory, but it helps you avoid common mistakes, such as signing a lease on premises where the municipality doesn't allow your type of business, or passing the sales tax threshold without noticing and paying the tax out of your own pocket on sales where you never collected it from customers.

What this guide doesn't cover

This guide doesn't cover partnerships or co-operatives, franchise rules, or the details of corporate tax in each province. Nor does it replace checking your immigration conditions: if you're on an employer-specific work permit or a study permit, ask a licensed consultant about the limits on self-employment before you start.

Frequently asked questions

Do I need a corporation to start working for myself?

No. A sole proprietorship is enough to start, and you report its income on your personal tax return. Incorporation is an option to consider when the risks or profits grow.

Do I need a BN if I work alone under my own name?

No, unless you need a CRA program account, for example to register for GST/HST or to hire employees.

How much does federal incorporation cost?

The government fee is $200 to incorporate online and $12 for each annual return, plus registration fees in the provinces where you operate and any accountant's or lawyer's fees if you use one.

My sales are under $30,000. Do I have to register for GST/HST?

No, not as long as you stay under the threshold over four consecutive quarters and in any single quarter, unless you're a rideshare or taxi driver. Voluntary registration is available if it suits you.

Can a work permit holder set up a federal corporation?

The directors rule requires at least a quarter of the directors to be citizens or permanent residents, or one director if the board has fewer than four. Whether your permit allows you to work for the corporation is an immigration question to put to a professional.

Sources and next step