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Canada Sole Proprietorship Guide

the sole proprietorship in Canada. The sole proprietorship is the simplest business structure — the business and the owner are the same legal entity. The business income is reported on the T2125 (the "Statement of Business or Professional Activities") and is included in the owner's personal income tax return (the T1 General). The sole proprietor pays tax at the personal marginal rates (not the corporate rates). The business registration (the Business Number — the "BN") is required for the GST/HST registration and the payroll deductions. The business expenses (the "ordinary and necessary" expenses for the business) are deductible — the vehicle expenses, the home office expenses, the supplies, the advertising, the professional fees, the insurance, the business taxes, and the CCA on the business assets. The self-employed CPP contributions — the sole proprietor pays both the employee and the employer shares of the CPP (the total of 11.9% of the pensionable earnings up to the YMPE of $71,300, plus the CPP2 contributions at 8% on the earnings above $71,300 up to $81,200). The unlimited personal liability — the sole proprietor is personally liable for all the business debts and the obligations. The sole proprietor tax deadline is June 15 (the same as the self-employed individual — the balance due is still April 30). The sole proprietor vs incorporation — the sole proprietorship is simpler and cheaper, but the corporation offers the limited liability and the tax deferral.

Business Registration

• Business Number (BN): The 9-digit number issued by the CRA when the business registers for the GST/HST, the payroll deductions, or the import/export. The sole proprietor can use the personal SIN for the business (the business does NOT need a separate BN unless the business registers for the GST/HST or the payroll).
• Business name registration: The sole proprietor can operate under the personal name (the "legal name") or the registered business name (the "trade name" — the "doing business as" or the "DBA"). The business name must be registered with the provincial government (the "business name registration" — the "NUANS" search for the name availability).
• GST/HST registration: The sole proprietor must register for the GST/HST if the total taxable revenue exceeds $30,000 in the 4 consecutive calendar quarters (the "small supplier" threshold). The GST/HST registration is voluntary for the businesses below $30,000.
• Payroll account: The sole proprietor who hires the employees must register for the payroll deductions (the "payroll program account" — the RP account). The payroll account is separate from the GST/HST account (the BN + the RP program code).

Business Income Reporting (T2125)

• T2125 form: The "Statement of Business or Professional Activities" — the form is filed with the T1 General return. The T2125 reports the gross business income, the deductible expenses, the CCA, and the net business income (or the loss).
• Gross income: The total revenue from the business — the sale of the goods, the services, and the commissions. The income is reported on the "cash basis" (the "cash method" — the income is recognized when the payment is received) or the "accrual basis" (the "accrual method" — the income is recognized when the service is rendered).
• Business expenses: The "ordinary and necessary" expenses incurred to earn the business income — the advertising, the office supplies, the insurance, the professional fees (the legal, the accounting), the business taxes (the provincial business tax, the municipal business tax), the bank charges, the interest on the business loans, the business meals and the entertainment (50% deductible), the vehicle expenses, the home office expenses, and the CCA on the business assets.
• Business loss: The net business loss (the expenses exceeding the gross income) can offset the taxpayer's other income (the "non-capital loss" — the business loss can be carried back 3 years and carried forward 20 years).

Self-Employed CPP Contributions

• Employee share: 5.95% of the pensionable earnings (the first $3,500 is exempt). The maximum employee share is $4,034 (2025).
• Employer share: The same 5.95% (the sole proprietor pays both the shares — the total of 11.9%). The employer share is deductible as the business expense.
• CPP2 contributions: 4% (employee) + 4% (employer) = 8% on the earnings above $71,300 up to $81,200. The maximum CPP2 contribution is $792 (the total of both the shares).
• Total CPP for the sole proprietor: $4,034 (basic) + $396 (CPP2) = $4,430 (employee share) + the same as the employer share = $8,860 total (2025).

Sole Proprietor vs Incorporation

• Sole proprietorship: The simpler structure, the lower cost, the unlimited personal liability, the income is taxed at the personal rates, the CPP contributions are required, and the EI is optional.
• Corporation: The limited liability, the income is taxed at the corporate rates (the small business deduction at 9% federal + the provincial rate), the tax deferral (the income can be retained in the corporation at the lower corporate rate), the dividend integration, and the greater complexity and the cost.

For the incorporation and the corporate tax rules, see our Corporate Tax Guide →. For the GST/HST registration and the filing requirements, see our GST/HST Guide →.