Q: How do I Register as an Independent Contractor (Sole Proprietor) in Canada?
Learn how to register as an independent contractor (sole proprietor) in Canada, from business registration to getting your business number.
Beyond its delicious maple syrup and poutine, Canada has a stable and flourishing economy, making it an amazing place for businesses and sole proprietors. Many professionals in Canada are becoming self-employed by registering for a sole proprietorship. If you’re interested in joining the free and independent ranks of Canadian sole proprietors, you have come to the right place. Here is a quick look into the basic and essential information you’ll need to get on your way. The information here should not be used in place of legal counsel and can also largely be found on the Canadian government’s website.
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Who is a Sole Proprietor?
At the core of things, a sole proprietor in Canada is just a self-employed worker or an independent contractor working on their own. As a sole proprietor in Canada, you are a business owner who is not separate or distinct from their business — the business and the owner have the same legal status. This means that you take on all responsibility and risk with decision-making and business losses and profits.
Creating a Business Name
When naming your business, keep in mind that good business names will describe the business’s essential activities while not being too specific or limiting – you don’t want to paint yourself into a corner and miss out on future business prospects! Make sure your name is unique so that you can be differentiated from other businesses.
You have to follow some legal naming rules: don’t include legal identifiers (e.g., “Limited, Ltd., Corporation, or Corp. Incorporated, Inc.,”) since these are only for incorporated businesses with limited liability.
You also should make sure you have the legal right to use your chosen business name. A quick name search can accomplish this — either in public info sources (phone directories, Yellow Pages, Canada 411, etc.) or through a domain registration site (completing a free WHOIS domain search). Doing your own search for your potential business name, before hiring a professional, could show you the possible legal naming conflicts before you have to spend a single dollar (or “loonie”)!
Registering Your Business Name
Unless you want to operate your sole proprietorship business under your own name, you usually begin the Canadian business registration process by registering the business name in the Register of Business. You will have to register as a sole proprietor in the Canadian provinces and territories in which you want to do business. The specific website of your particular provincial or territorial business registrar should have more information:
- Alberta (in Alberta, registering a Business Name can’t be done online)
- British Columbia (Name Approval)
- Manitoba (Business Name Registration)
- New Brunswick (Registration of a Business Name)
- Northwest Territories (Business name registration)
- Nova Scotia (Reserving a business name)
- Nunavut (Business registration)
- Ontario (Business Name Registration)
- Prince Edward Island (Business Name Registration)
- Quebec (Register an enterprise)
- Saskatchewan (Name Reservation)
- Yukon (Business Names).
If you do choose to operate under your own full name, then it’s not necessary to register the business name nor to complete procedures that go with that (initial declaration, updating declaration, etc.). Still, be sure not to use any additional legal names (“Co.”, “Partners/sons”, “Inc.”) since those are reserved for actual businesses. For example, the full name “Linda Lee” does not require registration, but “Linda Lee Graphic Design” would need to be registered.
There are a few reasons why you need to register a name:
- When opening a bank account, you are required to show proof of business name registration.
- You need to be positive that you aren’t taking anyone else’s business name in Canada. You will either have to change your business name or compensate the other business owner if this is the case.
- Branding! You want to make your business recognizable.
The Canada Revenue Agency (CRA) communicates with businesses through a Business Number (BN). The CRA assigns a nine-digit long BN to your tax ID. YourEach BN is unique and you will use it when interacting with the government (federal, provincial, or local). If you are a “Small Supplier” (sole proprietor making less than $30,000 per year from business activity), then you are allowed to operate without a BN.
BNs are required if you need a CRA program account such as :
- Goods and services tax/harmonized sales tax (GST/HST) if your business collects GST/HST;
- Payroll deductions if your business pays employees;
- Import/export privileges if your business imports goods or sells goods or services abroad.
A BN is also needed if your business is incorporated (for corporate income tax purposes) in British Columbia, Manitoba, Nova Scotia, Ontario, Saskatchewan, New Brunswick, or Prince Edward Island.
Tax-wise, any money you earn from your Canadian sole proprietorship counts as personal income. As a sole proprietor, you fill out a T1 income tax and benefit return, reporting all income or loss. You also have to file Form T2125 Statement of Business and Professional Activities since your business income and personal income are joined together along with your T1 income tax and benefit return. You’ll also need to submit forms for provincial income taxes.
A return also must be filed if you are claiming any of the following: an income tax refund, a refundable tax credit, or a GST/HST credit. If you are entitled to receive provincial tax credits, you should also file a return.
Sole proprietors who are not “Small Suppliers” (see below) are required to register for the GST/HST if they provide taxable sales, leases, or other supplies in Canada. GST/HST registration is not required if the only taxable supplies are of real property sold other than in the course of business.
If you’re a “Small Supplier” (sole proprietor earning less than $30,000 annually), you don’t have to register with the tax authorities for GST and QST purposes, and the CRA will not necessarily mandate that you have a BN. Rather, you can use a Social Insurance Number (SIN) in this situation.
Opening a Bank Account
Once you have registered your sole proprietorship in Canada, you’ll probably want to start seeing that cash inflow. This means you’ll need a bank account. To open a bank account on behalf of your business, you need to show proof of business name registration and photo ID.
If you have a partnership, authorized signing officers will not have permission to sign checks or access the account until they have signed on to the account at the bank. Your specific bank may have other requirements, so check with them.
In general, it’s smart to ask your bank appropriate questions relating to your business and to order the necessary amount of checks/deposit books/personalized business stationery. It also may be useful to ask your bank for a banking card, debit card, interbranch card,or internet/phone access to the account. You can also apply for a credit card for your business spending.
Start the journey to becoming a sole proprietor today!
Now you know the basics of becoming a sole proprietor in Canada! Whether you want to be a freelance artist or a self-employed hockey team consultant, the information here will help you succeed. Whenever you’re ready, the Canadian government website can also serve as a guide. Becoming a sole proprietor in Canada is really not so complicated – just follow these steps, and it’ll be smooth sailing!
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Updated: November 17, 2020
Quick note: This is not to be taken as tax advice or legal advice or payroll advice. Since tax rules and laws change over time and can vary by location and industry, consult a CPA / tax advisor and/or attorney for specific guidance.