Many newcomers arrive in Canada with entrepreneurial ambitions — or find themselves doing freelance work that requires registering a business. The process is more straightforward than most people expect, but the choice between a sole proprietorship and incorporation has real tax consequences. Here is what you need to know before you register.
A sole proprietorship is the simplest structure. You register your business name with your province and all income flows directly to your personal tax return. It costs $60 to $100 to register in most provinces and takes about a day. The downside: you are personally liable for all business debts, and all profit is taxed at your personal marginal rate. Incorporation creates a separate legal entity taxed at a lower corporate rate (typically 9-12% on the first $500,000 of active business income in Canada). However, incorporation costs $500 to $2,000 to set up and requires ongoing maintenance. For most newcomers starting out with moderate self-employment income, a sole proprietorship is the right starting point. Once your annual profit consistently exceeds $50,000 to $80,000, talk to a CPA about incorporating.
To register a business in Canada, you need: a valid Social Insurance Number (SIN), a Canadian address, a government-issued ID, and your chosen business name (which must be searched to confirm availability). You will also need a business bank account — your personal account should never be mixed with business finances.
When you are self-employed, no one withholds tax from your payments. You are responsible for setting aside money for taxes throughout the year. Set aside 25-30% of every payment you receive. You will also pay both the employee and employer portions of CPP contributions — approximately 11.9% of your net self-employment income up to the annual maximum. If your total business revenues exceed $30,000 in any four consecutive quarters, you must register to collect GST or HST and remit it to the CRA.
In most provinces, you register a sole proprietorship directly with the provincial government registry. In Ontario, with Service Ontario. In Alberta, with Service Alberta. In British Columbia, with BC Registry Services. The cost is typically $60 to $100 and processing takes 1 to 3 business days online. If you are incorporating federally, you register with Corporations Canada for $200 online.
Once registered provincially, you need a Business Number (BN) from the CRA to handle GST/HST and corporate tax if you incorporate. Register for your BN online through the CRA Business Registration Online portal at canada.ca. It is free and takes about 15 minutes. The BN is a 9-digit number that stays with your business permanently.
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