A sole proprietorship is the simplest and most common form of business ownership in Ontario. It arises automatically when one individual begins selling goods or services with the intention of earning a profit.
Although a sole proprietorship is not a corporation, it still requires a Business Number (BN) from the Canada Revenue Agency (CRA). Sole proprietors report their business income on their personal T1 tax return using Form T2125 (Statement of Business or Professional Activities).
At Kalfa Law we help entrepreneurs determine whether a sole proprietorship is the most advantageous structure or whether transitioning to a corporation would minimize taxes, reduce risk, and improve long-term planning.
When Do You Need to Register a Sole Proprietorship?
A sole proprietorship comes into existence the moment you start selling a product or service.
You do not need to register your business with the Government of Ontario if you operate under your legal name (e.g., Sally Smith).
However, registration is required if you operate under a different name (e.g., Sally’s Sunshine Landscaping).
You may also need to register for GST/HST with the CRA if your annual sales exceed $30,000.
Advantages of a Sole Proprietorship
A sole proprietorship is often ideal for new or small businesses due to its simplicity and low cost.
Easy and Low-Cost Setup
- Quick to establish
- Minimal paperwork or regulatory requirements
- Low legal and administrative costs
- No partners, directors, or investors to manage
This structure is especially attractive for businesses earning under $100,000 annually, or for owners who do not plan to sell or transfer their business in the future.
Simple Tax Filing
All business income is reported on your personal T1 tax return via T2125, eliminating the need for separate business tax filings.
Disadvantages of a Sole Proprietorship
While a sole proprietorship is easy to start, it may not offer the legal and tax benefits needed as your business grows.
Unlimited Personal Liability
You are personally responsible for:
- All business debts
- Lawsuits
- Financial obligations
This means creditors can pursue your personal assets if the business encounters financial issues.
Higher Taxes at Higher Income Levels
Because income flows directly to you, the tax rate can be higher than the lower corporate tax rates available to incorporated businesses.
Limited Tax Planning Opportunities
Sole proprietors cannot take advantage of tax tools such as:
- Lifetime Capital Gains Exemption (LCGE)
- Income splitting with family members
- Corporate tax deferral
- Holding company planning
To determine whether incorporation would significantly reduce your tax burden, visit our incorporation service page.
Is a Sole Proprietorship Right for You?
A sole proprietorship may be right if you:
- Are you testing a business idea
- Expect low start-up revenue
- Want minimal setup costs
- Are comfortable with personal liability
- Do not need advanced tax planning
However, if you are growing, hiring employees, earning above $100,000, or want to protect personal assets, incorporation may be a more strategic option.
You can explore more detailed comparisons here:
