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A sole proprietorship is an unincorporated business that is owned by one individual. 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.
If you are a sole proprietor, you pay personal income tax on the net income generated by your business.
You may choose to register a business name or operate under your own name or both.
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 pays taxes by reporting income (or loss) on a T1 income tax and benefit return.
If you are a sole proprietor, you or your authorized representative 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
- 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 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 .
As a sole proprietor, you may have to pay your income tax by payments called instalments. You may also need to make instalment payments for 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:
- Form T2125, Statement of Business or Professional Activities
- Form T2042, Statement of Farming Activities
- Form T2121, Statement of Fishing Activities
- Form T1163, Statement A - AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Individuals
- Form T1164, Statement B - AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Additional Farming Operations
- Form T1273, Statement A - Harmonized AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Individuals
- Form T1274, Statement B - Harmonized AgriStability and AgriInvest Programs Information and Statement of Farming Activities for Additional Farming Operation
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 GST/HST or consult Guide RC4022, General Information for GST/HST Registrants.
Forms and publications
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