Starting a business in Canada is an exciting journey packed with opportunities, but it also comes with important decisions and legal responsibilities. The CRA does not provide a single checklist for every step, so it can feel overwhelming. This guide walks through the choices you need to make and the steps to follow.
Whether you are starting a side hustle, turning a passion into a profession, or aiming to build the next big startup, it is crucial to know the foundational steps of business formation. We will cover the Canadian business landscape from choosing a structure to registering with the CRA and preparing to hire employees.
Let’s begin with the first step: selecting the right business structure.
1. Choosing the Right Business Structure
Before you pick a name or collect your first payment, decide how you want to structure your business. In Canada, the most common options are a sole proprietorship or a corporation. Each has its own legal, tax, and operational implications that will influence how your business runs.
Sole Proprietorship
A sole proprietorship is the simplest and most common structure. It is owned by one person and there is no legal separation between the owner and the business.
Pros
- Easy and affordable to set up
- Income reported on your personal tax return
- Fewer regulatory requirements
Cons
- Personal liability for business debts and legal issues
- Harder to raise capital or scale
Corporation
A corporation is a separate legal entity with shareholders. It offers limited liability protection but involves more complexity.
Pros
- Limited liability for owners
- Potentially lower tax rates
- Easier to raise investment or sell the business
Cons
- Higher setup and ongoing costs
- More regulatory oversight and record keeping
- Requires filing a T2 corporate tax return
How to Choose the Right Structure
- How much risk and liability are you comfortable with
- How complex is your business model
- Will you bring in partners or investors
- What are your long-term goals such as growth, a future sale, or legacy
If you are unsure, consult a small business advisor, accountant, or lawyer. Making the right choice now can help you avoid costly restructuring later.
2. Registering Your Business
Once you choose a structure, make it official. Registration steps vary by province and structure, but generally include selecting a name, obtaining licenses and permits, and setting up accounts with government agencies.
Choosing and Registering a Business Name
If you operate under your personal name, such as “Jane Miller,” you may not need to register a business name. If you use a distinct name, such as “Miller Bookkeeping Solutions,” you must register it with your provincial or territorial government.
- Ensure the name is unique and available
- Avoid conflicts with trademarks or similar names
- Choose a name that reflects your brand and services
Getting the Right Licenses and Permits
Requirements depend on your industry and location. You may need municipal business licenses, health and safety certifications, or environmental permits. Check with your municipality and province for specifics.
Registering with the CRA
If your business needs a CRA program account, you will need a Business Number (BN), a unique 9-digit identifier. Common CRA program accounts include:
- RT: GST/HST
- RP: Payroll deductions
- RC: Corporation income tax
Each account includes a suffix, for example: 123456789 RT0001.
What If You Incorporate Later
If you start as a sole proprietor and later incorporate, you will register for a new BN and new CRA accounts for the corporation, then close any unneeded sole proprietorship accounts.
3. Understanding GST/HST and When to Charge It
What Is GST/HST
- GST is a federal 5% tax applied to most goods and services in Canada
- HST combines GST with provincial sales tax in certain provinces and is charged as one rate
- Which rate you charge depends on your customer’s location
When You Must Register
- You exceed $30,000 in gross revenue in four consecutive calendar quarters
- You exceed $30,000 in a single quarter
If you are under the threshold, registration is optional but can be beneficial if you want to claim input tax credits on expenses. If you expect to cross the threshold, consider registering early.
Charging the Right Rate
The GST/HST rate varies by province based on customer location. Use the official calculator here: GST/HST Rates and Calculator. You do not charge GST/HST on sales to international customers.
Input Tax Credits (ITCs)
Once registered, you can claim ITCs to recover the GST/HST paid on eligible business purchases. Example: if you collect $1,500 and pay $800 on expenses, your net remittance is $700. If ITCs exceed what you collected, you may receive a refund.
Filing and Remitting
File monthly, quarterly, or annually depending on your revenue and reporting choice. Pay on time to avoid penalties and interest. A bookkeeper can manage filings so you only need to approve and pay.
4. Understanding PST and When It Applies
What Is PST
PST is a provincial sales tax charged in certain provinces and administered separately from GST. Examples:
- British Columbia: 7%
- Saskatchewan: 6%
- Manitoba: 7%
- Quebec: QST at 9.975%
Each province sets its own taxable items and registration rules.
Small Seller Exemption
Some provinces offer a small seller exemption. For example, in BC you may qualify if your retail sales were under $10,000 in the last year and are expected to remain under $10,000 this year.
When You Must Charge PST
- Your business operates in a PST province and you do not qualify as a small seller
- You sell taxable goods or services to customers in PST provinces
Out-of-Province and Online Sales
If you sell into another PST province, you may need to register and collect there depending on volume or nexus. International sales are generally not subject to PST. Always check the rules for out-of-province vendors in each province where you have customers.
Registering, Collecting, and Remitting PST
- Register with the provincial tax authority
- Collect the correct rate on taxable sales
- Show PST separately on invoices
- Remit monthly, quarterly, or annually as required
Exemptions and Resale Certificates
Some goods and services are exempt. In BC, you can use a resale certificate to avoid PST on purchases for resale. Keep documentation to support any exemptions.
5. Setting Up Your Business Operations
Technology and Equipment
- Hardware: computers, mobile devices, POS terminals, printers
- Software: accounting tools such as QuickBooks, receipt apps such as Dext, scheduling and inventory tools
- Connectivity: reliable internet and cloud storage
Business Systems and Processes
- Point of Sale: Square, Shopify, or Lightspeed for sales tracking and reports
- Accounting: QuickBooks to track income, expenses, and taxes; integrates with POS and payroll
- Time Tracking: QuickBooks Time or similar for billable hours and payroll
Separating Personal and Business Finances
Even as a sole proprietor, keep business finances separate for clean records and easier GST/PST tracking. A dedicated business bank account is strongly recommended.
6. Hiring Employees and Meeting Labor Requirements
Employment Standards
Employment standards vary by province. Key areas include minimum wage, hours and overtime rules, vacation and statutory holiday pay, paid sick days where applicable, anti-discrimination policies, equal pay, and termination notice requirements.
Register for a Payroll Program Account
Before paying employees, register with the CRA for a payroll program account. You must deduct and remit:
- Income tax
- Canada Pension Plan (CPP) contributions
- Employment Insurance (EI) premiums
Employers also remit the employer portions of CPP and EI. Remittances are usually monthly or quarterly.
Use Payroll Processing Software
To reduce errors and missed deadlines, use payroll software that integrates with your accounting system. Options include QuickBooks Payroll and Wagepoint to automate calculations, pay slips, and CRA submissions.
Register for Worker’s Compensation
If you have employees, register with your provincial worker’s compensation authority such as WorkSafeBC or the equivalent in your province. This protects employees for workplace injuries and helps protect your business from related lawsuits.
Final Thoughts
Starting a business in Canada is more than a great idea. It requires a solid plan, legal compliance, and organized operations. Consider partnering with a bookkeeper to track income and expenses, handle government remittances, and deliver monthly reports. A good bookkeeper provides clarity, confidence, peace of mind, and actionable data so you can focus on growth.
Disclaimer
This blog provides general information and is not legal advice. Consult a lawyer or qualified professional before making decisions. We are not responsible for actions taken based on this summary.
