Starting a business in Canada? Here’s what to sort out first

Before you take a single dollar, five things need to be in place:

• A name you can legally use
• A decision on sole proprietor or corporation
• Your registration
• A separate business bank account
• A simple way to track the money from day one

None of it is as complicated as it looks. The problem is that nobody explains it in plain English.

Most people don’t come to us at the start. They come about eighteen months in, with receipts scattered across an email inbox, a Google Drive folder, a camera roll and the glovebox — and a bank account where business and personal money have been living together since day one. It’s all fixable. It just costs more to untangle than it would have cost to set up properly.

If you’re reading this before you’ve started, you’re already ahead. And if you’re reading it eighteen months in: nobody here is going to make you feel stupid about it. That’s not how we work.

1. Pick a name you can actually use

Liking a name isn’t the same as being allowed to use it. Three checks, in this order:

• Is it free legally? Search your province’s business registry. A name already in use will get your registration rejected.
• Is the domain available? Check before you fall in love with it.
• Does it still fit in five years? “Sarah’s Pandemic Puzzles” made sense once.

2. Sole proprietor or corporation?

The plain version:

Sole proprietor — you and the business are the same person as far as tax goes. Business income goes on your personal return. Simplest and cheapest to run.

Corporation — a separate legal entity. It files its own corporate return, its books carry forward year to year, and there’s real administration behind it. More to set up, more to maintain.

Most people start as a sole proprietor. Incorporating usually makes sense once profit is consistently more than you need to live on, or when liability matters in your line of work. It isn’t a decision you have to get right on day one — you can incorporate later.

We’ve written the full comparison here: T2125 vs T2: sole proprietor or corporation? And if you’re staying a sole proprietor: how to file your taxes as a sole proprietor.

One thing worth knowing now: if you incorporate, the bookkeeping genuinely has to be done on proper accounting software. Corporate books carry forward and have to tie into the corporate tax return. That’s a different job from a sole proprietor’s.

3. Register the business

If you’re a sole proprietor operating under your own legal name, you may not need to register at all. Operating under a business name means registering that name provincially.

If you’re incorporating, that’s done federally or provincially, usually through a lawyer or a registry service.

The CRA business number. You need one when you register for a CRA program account — GST/HST or payroll — or when you incorporate. A sole proprietor with no employees who isn’t registered for GST/HST often doesn’t need one yet. CRA explains who needs a business number here.

4. Open a separate business bank account

If there’s one thing on this page to do this week, it’s this one.

For a corporation it isn’t optional — the company’s money is legally not your money, and mixing them creates problems well beyond bookkeeping. For a sole proprietor it isn’t legally required, but do it anyway. Every hour of untangling later starts here.

You don’t need anything fancy. A plain business chequing account at whichever bank you already deal with will do. What matters is that it’s separate.

When should you start paying yourself?

In the early months, paying yourself little or nothing is completely normal. That’s how most businesses start and it isn’t a failure.

But if you’re into year two and still taking nothing out, what you have is an expensive hobby you’re spending a lot of time on. Somebody should say that out loud, and most people won’t.

Here’s what we’ve watched happen with client after client: the point where someone starts taking money out regularly — real payroll, or just a consistent draw — is usually the point the business starts growing properly. It isn’t the money that does it. Something shifts in how you treat a business once it’s paying you, and the way you make decisions changes with it.

A lot of this is mindset rather than numbers, and we pay attention to that side too. We’ve seen what the pieces look like at each stage, because we’ve watched a lot of people go through it.

The mechanics. As a sole proprietor you simply move money across — it’s an owner’s draw, not payroll, with no tax deducted at the time. In a corporation, paying yourself is a real decision with real tax consequences: salary, dividends, or a mix. Full detail here: how to pay yourself as a business owner.

5. Decide how you’ll track it

Setting this up with three transactions takes an afternoon. Setting it up with three thousand takes a bookkeeper.

A spreadsheet is fine for a straightforward sole proprietorship. Accounting software earns its place once you’re invoicing regularly, registered for GST/HST, or incorporated. Start here: how to choose accounting software for your Canadian business. And if you’re wondering whether to let AI handle it: can AI do your bookkeeping in Canada?

Whichever way you go, get your receipts into one place from the start — out of the inbox, off the camera roll, out of the Drive folder nobody can search. We recommend Hubdoc to everyone, clients or not. It files and reads receipts automatically and pushes them through to your accounting system. It’s the single most useful thing you can put in place early.

Working from home? Most new businesses do, and there’s a real deduction in it if you track it from the start — here’s how business-use-of-home works. Worth knowing now rather than reconstructing it in April. And when you’re wondering what else counts: business expenses you can write off in Canada.

Do I need to charge GST/HST right away?

Usually not — and this is the question we get asked most by people just opening up.

You’re a small supplier until your taxable revenue passes $30,000 (the threshold at the time of writing — check the current rules with CRA). Below that, registration is optional. Two tests decide when it stops being optional:

• Over $30,000 in a single calendar quarter — you stop being a small supplier on the sale that crosses the line, and you charge GST/HST on that sale.
• Over $30,000 across four consecutive quarters — you stop being a small supplier at the end of the month after the quarter you crossed in.

You can also register voluntarily before you hit the threshold. Worth considering if you have significant startup costs, because registering lets you claim back the GST/HST you paid on them. The whole thing, properly: how to charge GST/HST for your business in Canada.

How much should I set aside for tax?

Nobody tells you this, so people reach the end of the year with nothing put by.

Our working rule of thumb for sole proprietors under roughly $100,000 of revenue: set aside 25–30% of revenue if you’re a service business, 20–25% if you sell products — for income tax only. Above that, a percentage stops being good enough and the number should be worked out properly.

GST/HST is separate. It comes off the top into its own account the moment you collect it. It was never your money.

And once you’re established, CRA may want it in advance: tax instalments for small business.

Recap

• Check the name legally, as a domain, and against your own future
• Choose sole proprietor or corporation — you can change later
• Register the business, and get a CRA business number if you need one
• Open a separate business bank account
• Start paying yourself, on a schedule, as soon as the business can carry it
• Set up tracking and receipts now, and put tax money aside as it comes in

Want to watch rather than read?

We’ve put our free guides, checklists and short videos in one place — including one on starting a new business in Canada and one on when to start paying yourself. Get the free Start-Up Library.

Not sure you’ve got it set up right? Let’s talk it through

A free 15-minute video call on Google Meet — bring whatever you’ve got, including nothing. We’ll tell you what to do first.

Or if you’d rather have it in writing, email team@kcandcompany.ca with what you’re starting and where you’re at, and we’ll come back to you.

Doing it yourself for now? Our bookkeeping spreadsheet gives you the tracking in step 5 without the software.

Not sure you need us yet? That’s a fair question and we’ve answered it honestly: do you need a bookkeeper?

We work with online and service businesses, trades and contractors, and health and wellness practitioners.

Common questions

Do I need to register my business right away?
If you’re a sole proprietor trading under your own legal name, often not. Using a business name means registering that name provincially. Incorporating is a separate step, done federally or provincially.

Do I need a CRA business number as a sole proprietor?
Only when you need a CRA program account, such as GST/HST or payroll, or if you incorporate. A sole proprietor with no employees who isn’t registered for GST/HST often doesn’t need one yet.

Do I have to charge GST/HST when I’m just starting out?
Usually not. You’re a small supplier until your taxable revenue passes $30,000 (the threshold at the time of writing). You can register voluntarily sooner, which lets you claim back the GST/HST paid on startup costs.

Do I need a separate bank account for a sole proprietorship?
Not legally, but do it anyway. For a corporation it isn’t optional — the company’s money is legally separate from yours.

Should I incorporate right away?
Most people start as a sole proprietor. Incorporating usually makes sense once profit is consistently more than you need to live on, or when liability matters in your line of work. You can incorporate later.