Thinking of Starting a Business in Canada? Here's Your Guide to Sole Proprietorships

Starting a business is an exciting journey, but figuring out where to start can be overwhelming. One of the most common business structures in Canada is the sole proprietorship—a simple, straightforward way to launch your dream. But is it the right fit for you? Let’s break it down in plain language, so you know what to expect.

What Is a Sole Proprietorship in Canada?

A sole proprietorship is the simplest form of business ownership. In this structure, the business and owner are legally the same, meaning all the profits—and the risks—are yours. According to the Canada Revenue Agency (CRA), a sole proprietorship is an unincorporated business owned and operated by one person.

This structure is ideal for small start-ups, side hustles, or personal businesses, as it requires minimal setup and allows you to hit the ground running.

The Pros of Starting a Sole Proprietorship

1. Low Start-Up Costs
   Starting a sole proprietorship won’t break the bank. You can register your business name (if different from your personal name) and get the necessary licenses without hefty fees. Plus, the internet makes it easy to promote your business for free using tools like websites and social media.

2. Full Control

   • As the sole owner, you’re the boss.

   • You keep all the profits and make all the decisions.

   • You can pivot your business anytime—no need for board meetings or partner approvals.

3. Tax Perks
   Your business income is reported as part of your personal income, which means you may:

   • Deduct business expenses like supplies, utilities, or travel.

   • Offset business losses against other personal income, reducing your tax bill.

   • Save on corporate taxes since you’re not incorporated.

4. GST/HST Benefits

   • If your revenue exceeds $30,000 annually, you must register for a GST/HST number.

   • Voluntary registration before hitting $30,000 can allow you to claim input tax credits, reducing your tax liability.

The Cons of a Sole Proprietorship

1. Unlimited Liability
   Here’s the catch: you’re personally responsible for all your business debts. If something goes wrong, your personal assets—like your home or car—could be at risk.

2. Challenges Raising Capital
   Since you’re the sole owner, you can’t sell shares or equity to raise funds. Loans and personal savings are typically your main options, which might limit your ability to scale quickly.

How to Set Up a Sole Proprietorship in Alberta

Getting started is easier than you think! Follow these simple steps:

1. Pick Your Business Name
   Use your name or choose something unique. If it’s not your own name, you’ll need to register it with the provincial government. Check for name availability to avoid conflicts.

2. Get Licenses and Permits
   Depending on your business type, you may need municipal, provincial, or federal permits. For example:

   • Zoning permits

   • Health and safety permits

   • Specialty licenses for liquor, construction, or environmental compliance

3. Stay Organized with Taxes

   • Keep detailed records of income and expenses for at least six years.

   • File your taxes using the CRA’s Form T2125 (attached to your personal T1 Return).

   • Make instalment payments for income tax and Canada Pension Plan (CPP) contributions as needed.

Is a Sole Proprietorship Right for You?

Sole proprietorships are perfect for small to medium-sized business owners looking for a simple and affordable way to start their business journey. However, this structure comes with risks, so it’s essential to weigh the pros and cons.

If you’re unsure, consulting a tax professional or bookkeeping expert (like us!) can help you understand how this decision impacts your business taxes, liabilities, and long-term goals.

Your Business Partner in Alberta

At Ask-Her™ Tax + Bookkeeping Inc., we specialize in bookkeeping and personal and business tax services for small to medium-sized businesses, Indigenous entrepreneurs, and individuals across Alberta. Whether you’re setting up a sole proprietorship or need help navigating the CRA’s rules, we’re here to guide you every step of the way.

Remember: hiring a tax professional isn’t an expense—it’s an investment in your business’s success. Let us help you focus on growth while we handle the numbers.

Thank you for coming to visit with us. If you have any questions at all regarding starting a Sole Proprietorship please reach out and Ask-Her!

We wish you the best and Happy Taxing.

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Shelilia Vivier - President/CEO
Ask-Her™ Tax + Bookkeeping Inc.
Copyright 2023