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Just the "Coles Notes" for Starting a Self Employment Business in Canada


​I had a friend send me an email to ask me "I want to start a freelancing business... what do I need to know?".  Most freelancers start off as a “Sole Proprietorship” which is a non-incorporated business (also referred to as “self employed”).  This is not something you register for, it’s just how you are taxed.  So, my response to her was in regards to starting a NON-Incorporated business.  If you are considering starting a Corporation, you should connect with an accountant to discuss that further.  I have a quick video on the differences between an incorporated business, and a non-incorporated business here.

These are just the basics... I do have a quick checklist "First 10 Steps You Must Take when Starting A Business" to help start you off!  Are you looking to start a business that's got more going on that just services?  There is also the "Ultimate New Business Research Checklist" so you know you've covered everything that could possibly need looking into.  Find my New Business Checklists Here.

As my friend and I both live in Ontario,  here's my answer to a fellow Ontarian regarding starting a self employed business in Ontario.  It's likely very similar to the other provinces and territories, and the answer does explain what you need to register for provincially vs federally;

  • If you are going to run the business under a business name other than your own personal name, you will need to register your business name with the Province of Ontario and get a business license to operate under that name in Ontario.  It’s pretty quick n easy.  It includes a name search to make sure no one else is operating under that name, and only costs $60. If you do this, they will give you a Business License to operate under that name, and Business Identification Number.  This is NOT the same thing as a Business Number, which is a federal thing. (The name of the number is so close, it confuses many people!).  If you are not creating a business operating name and are just running the business under your own personal name, you do not need to do this.

  • You do not have to register your business with the Federal Government until there is a reason to do so.  There are two federal agencies: Service Canada & Canada Revenue Agency (CRA).  You do not have to register with Service Canada unless you hire employees (at which point, you will need to be able to issue ROEs via Service Canada’s ROE Web, and you will need to be registered with CRA before you create an account with Service Canada).  You do not have to register with the Canada Revenue Agency (CRA) and get a Federal Business Number unless one of these three things occur:
    • You want/need to start charging GST/HST
    • You hire an employee
    • You incorporate the business

  • You cannot charge GST/HST unless you are registered to do so.  This also means that you cannot get the GST/HST back on the business expenses either.  You MUST register to collect GST/HST if your sales go over $30,000 in four consecutive quarters (one year).  At that point you must register for a CRA GST/HST account moving forward, and that is when you get the CRA Business Number. 

  • You can choose to register to collect GST/HST before the $30k threshold.  The amount you charge to your clients will increase (Instead of charging them $100, you will charge them $100 + HST = $113).  Your revenue would still be $100, but you will owe $13 to CRA.  So, why would someone choose to register before the $30k threshold?  Because once you are registered to collect GST/HST, you get back all the GST/HST you pay on your business expenses.  It’s additional work to track, and there are more filing deadlines to be aware of.  So, you’d want to learn more about this before you fire it up.  It’s very beneficial if your business costs are high.  But if you are running a service based business with low costs, there is no urgency to start this up until your revenues begin to climb. (Here's a blog post that talks about this further)

  • It will help IMMENSLY to have a bank account and credit card that you ONLY use for business transactions.  It doesn’t have to be a business bank account, it can be a normal account that you simply only use for business deposits and expenses.  Same with the credit card.  Designate a current credit card (starting with a zero balance) or start up a new one today, and consciously only use it for business expenses. In this way, you will have a list that is automagically created of every business transaction!!!  This will save you HEAPS of time when it comes to doing your bookkeeping.  ONLY USE IT FOR BUSINESS!  Or the magic doesn’t work!  (If you are registering an operating name with Ontario, make that the first $60 spent on the dedicated Credit Card.  Then, you can use your Ontario business license to open up a business bank account!).

  • You don’t have to worry about incorporating your business unless you expect very high revenues.  Most freelancers start off as a “Sole Proprietorship” which is a non-incorporated business (also referred to as “self employed”).  This is not something you register for, it’s just how you are taxed.  You will be charged income tax on the profit of your business (revenues minus expenses).  You report the business earnings of your sole proprietorship on your personal tax return (there’s a form/schedule you include called “T2125: Statement of business or professional activities”).  Expect your income tax to be 25% to 30% of your profit. (It could be higher or lower depending on your unique personal situation).  So, put aside 25% of your income (I do it each time someone pays me) into a savings account ready for tax time.  No one is deducting Income taxes or CPP from you as what happens as an employee.  So be ready to be payable next tax time!

  • Record the odometer reading on your vehicle and start up a vehicle log.  You will need this to claim your vehicle expenses.  Keep track of all your gas receipts and vehicle expenses.  The percentage that your vehicle log reveals you drive your vehicle for business, that’s the percentage of all of the gas and maintenance you paid throughout the year you can claim.  So, you’ll need the total of gas you put into that vehicle for the year, plus the vehicle log, in order to claim your gas expenses.  This is something people don’t realize until after, but it’s much easier to know this from the beginning! 

  • Don’t forget insurance.

    These are just my Coles notes and do feature Ontario.  For more information, you can contact the government of the Province you are in to get information on opening a business specifically in your Province.   Also, did you know that Canada Revenue Agency (CRA) offers a FREE Liaison Officer service to owners of small businesses and self-employed individuals to help them understand and meet their business tax obligations? A meeting with a Liaison Officer is 100% confidential; the information you choose to discuss with a Liaison Officer will not be shared with other areas of the CRA, or anyone else. Find out more and book your free appointment here!
Get out there, and #BeThatBusiness that THRIVES!
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