Sole proprietorship

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A sole proprietorship is an unincorporated business that is owned by one person. It is the simplest kind of business structure.

The owner of a sole proprietorship has sole responsibility for making decisions, receives all the profits, claims all losses, and does not have separate legal status from the business.

If you are a sole proprietor, you also assume all the risks of the business. The risks extend even to your personal property and assets.

It is easy to set up a sole proprietorship. Simply operate as an individual or as a registered, unincorporated business. If you operate as an individual, just bill your customers or clients in your own name. If you operate under a registered business name, bill your clients and customers in the business's name. If your business has a name other than your own, you'll need a separate bank account to process cheques payable to your business.

How does a sole proprietor pay taxes on their business income?

A sole proprietor reports all revenue generated by the business and claims all expenses incurred to earn this income on their T1 income tax and benefit return. The net income (or net loss) forms part of the sole proprietor's overall income for the year.

If you are a sole proprietor, you have to file a T1 return if you:

  • have to pay tax for the year;
  • disposed of a capital property or had a taxable capital gain in the year;
  • have to make Canada Pension Plan/Quebec Pension Plan (CPP/QPP) payments on self-employed earnings or pensionable earnings for the year;
  • want to access employment insurance (EI) special benefits for self-employed persons. For more information, see Guide T4002, Business and Professional Income; or
  • received a demand from us to file a return.

You also need to file a return if you are claiming an income tax refund, a refundable tax credit, a GST/HST credit, or the Canada child tax benefit. You should also file a return if you are entitled to receive provincial tax credits.

The list above does not include every situation where you may have to file. If you are not sure whether you have to file, call 1-800-959-5525 .

Note

As a sole proprietor, you may have to pay your income tax by instalments. You may also need to make instalment payments for Canada Pension Plan (CPP) contributions on your own income. For more information, go to Paying Your Income Tax by Instalments.

When you file your income tax and benefit return, you must include financial statements or one or more of the following forms, as applicable:

We will also accept a computer-generated version of these forms.

Do you have to register for GST/HST?

As a sole proprietor, you may be required to register for the goods and services tax/harmonized sales tax (GST/HST) if you provide taxable supplies in Canada.

For more information, go to Learning the basics of the GST/HST or consult Guide RC4022, General Information for GST/HST Registrants.

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