Written by Behdad Karimi Dermeni, CPA · Reviewed by Maryam Ajorloo, CPA
To start a small business in Canada, pick a structure (sole proprietorship, partnership or corporation), register the business name with your province or federally, get a business number from the Canada Revenue Agency (CRA), open a separate business bank account, register for GST/HST once you pass $30,000 in taxable sales, and set up bookkeeping from day one.
That is the whole job in one sentence. The rest of this guide is the detail behind each step, written by CPAs who spend their days cleaning up the books of people who skipped a few of them.
Most guides on how to start a small business in Canada stop at "register your business and follow your passion." That is the easy part. The part that decides whether you are still trading in three years is the money: which structure taxes you least, when you have to start charging sales tax, what you can write off, and how you pay yourself without creating a problem for future you.
Start the way you want to finish, and set up your books for free for 30 days.
How to start a small business in Canada in 8 steps
Here is the order we recommend. Doing these out of sequence is the single most common and most expensive mistake we see.
Pressure-test the idea and the numbers. Work out what it costs to deliver your product or service, what you can charge, and how many customers you need to break even. Do this before you spend anything.
Choose your business structure. Sole proprietorship, partnership, corporation or LLP. This decides how you are taxed and what you are personally on the hook for.
Pick and register your business name. Check that the name is available, then register provincially or federally depending on where you will operate.
Get your business number from the CRA. The business number is the account number everything else hangs off: payroll, GST/HST, corporate income tax, import and export.
Get the permits and licences your industry needs. These are federal, provincial and municipal, and they vary enormously by industry and city.
Open a separate business bank account. Not optional, not "later." Mixing personal and business money is the thing that turns a two-hour year-end into a two-week one.
Register for GST/HST if you need to. Mandatory once your taxable sales pass $30,000. Optional, and often worth it, before that.
Set up your bookkeeping before the first transaction. The first month is the easiest month you will ever have to record. It gets harder every month you wait.
Steps 1 through 5 take most people a few weeks. Steps 6 through 8 take an afternoon and are the ones people put off for a year.
What it costs to start a small business in Canada
Startup costs vary wildly by industry, but the compliance costs are fairly predictable and they are the ones nobody budgets for. Expect to plan for:
Business registration. Registering a sole proprietorship or partnership name is the cheapest route. Incorporating costs more, and costs more again if you incorporate federally and then register extra-provincially in each province you operate in. Our partner Ownr handles registration and incorporation if you would rather not do the paperwork yourself.
Permits and licences. Highly industry-specific. A consultant working from home may need nothing beyond a municipal business licence; a regulated profession may need considerably more.
Professional advice. A conversation with an accountant before you choose a structure is the cheapest tax planning you will ever buy, because structure is expensive to change later.
Insurance. General liability at minimum, professional liability if you advise clients.
Your accounting setup. A bank account, a way to send invoices, and bookkeeping. This is the recurring cost, and it is small relative to what it saves.
Working capital. The one people underestimate. You need enough runway to cover your own living costs until the business pays you, which is usually longer than the plan says.
Choose your business structure
Before the detail, the rule of thumb: choose the simplest structure that covers your liability and your tax bill, and no simpler. Most people start as a sole proprietor and incorporate when the tax savings outweigh the extra admin. Very few need anything more complicated than that on day one.
Sole proprietorship
The simplest structure, where one person owns and runs the business. Easy to set up, minimal ongoing filing, and no legal separation between you and the business, which means you are personally responsible for its debts.
How it is taxed: business income is reported on your personal tax return using form T2125 and taxed at your personal rates.
Who it suits: freelancers, solo consultants, creative work, anyone who does not expect a large team and is not taking on much liability.
Partnership
Two or more people or entities running a business together. In a general partnership all partners share responsibility and liability; in a limited partnership some partners have limited liability. A written partnership agreement setting out roles, responsibilities and profit sharing is essential, and the absence of one is a recurring source of expensive arguments.
How it is taxed: the partnership itself does not pay tax. Each partner reports their share of the income on their own personal return.
Who it suits: anyone who already has a co-founder, or expects one soon.
Corporation
A separate legal entity from its shareholders, which is the whole point: it gives you limited liability. It costs more to set up and carries real ongoing obligations, including a corporate tax return every year whether or not you made money.
How it is taxed: the corporation files its own T2 return and pays corporate tax on its profits. You then pay personal tax on the salary or dividends you take out. A Canadian-controlled private corporation claiming the small business deduction pays a federal rate of 9% on its first $500,000 of active business income, against a general federal rate of 15%, and provincial rates apply on top.
Who it suits: businesses you intend to grow, hire into, or raise money for, and profitable businesses that do not need to draw out everything they earn.
That last point is the real test, and it is worth a proper look: see corporation vs self-employed for the comparison, at what income level you should incorporate for the threshold, and the small business deduction explained for why the 9% rate matters so much. If you land on incorporating in Ontario, we have a step-by-step incorporation guide.
Limited liability partnership (LLP)
A hybrid that gives partners limited liability while keeping much of a partnership's flexibility. In most provinces LLPs are restricted to specific regulated professions.
How it is taxed: like a general partnership. The LLP does not pay tax directly; partners report their share on their personal returns.
Who it suits: professionals who are required or permitted to use it, typically lawyers, accountants and some consultants.
Get registered and set up properly
Once you have picked a structure, check that your business name is actually available, then register it. You can register provincially or federally, and federal registration gives you name protection across Canada but usually means registering in each province where you carry on business as well. The official starting point is the government's own registration guidance.
You will also need a business number, the nine-digit identifier the CRA uses for your business, with program accounts attached to it for GST/HST, payroll and corporate income tax. The rules for getting one changed recently, so read how to get a business number rather than relying on older advice.
Then work through the practical setup:
Decide where you will work (office, coworking space, or home)
Complete your business registration, federally or provincially as appropriate
Trademark your business name if the brand matters to you, or file an application to start the process
Check whether your industry needs further permits, licences or certifications before you trade
Set up a business email and a place to keep your important documents
Open a business bank account, and keep every dollar of business money in it
Start tracking your finances from the first transaction
On the bank account: this is the step with the best effort-to-payoff ratio in the entire list. One clean account means your bookkeeping is a record of what happened rather than an archaeology project. Our guide to business bank accounts in Canada covers what to look for.
Write a business plan you will actually use
A business plan is worth writing even if you never show it to anyone, because the act of writing it exposes the assumptions you have not tested. Keep it short enough that you will update it. We suggest covering:
A summary of the idea and the vision
A description of the product or service
Market analysis
Competitive analysis
Marketing and sales plans
Management plans
Operating plans
Financial projections
If the financial projections section is where you stall, start from our free cash flow projection template rather than a blank spreadsheet.
Know your numbers before you open
Finances are the lifeblood of a business, and the questions below are the ones a lender, an investor or a worried you at 2am will ask. Answer them now, on paper:
How much runway do I have to get the business started?
What recurring expenses should I expect?
What revenue do I need to break even?
What does it cost me to deliver my product or service?
What are my profit margins?
How much does it cost to acquire a customer?
How long before my first sale?
If you are unsure on margins, our profit margin calculator does the arithmetic. You will also want to get comfortable with the financial statements that report all of this back to you, because they are how you find out whether the plan is working before your bank balance tells you the hard way.
Small business taxes in Canada: what you owe and when
This is the section people skim and later wish they had not. None of it is complicated on its own. It just has to actually happen.
Income tax and sales tax are two different things
Income tax is charged on what your business earns. Sales tax is charged on what you sell, collected by you from your customer, and remitted to the government. The money you collect in sales tax was never yours, which is why a business can feel profitable right up until a sales tax remittance is due.
GST, HST and QST: when you have to register
You must register for GST/HST once your taxable sales exceed $30,000. Specifically, the CRA's small supplier rule works two ways: if you pass $30,000 in a single calendar quarter you stop being a small supplier immediately and must charge tax on the sale that took you over, and if you pass $30,000 over four consecutive calendar quarters you stop being a small supplier at the end of the month following that quarter. Note that this is $30,000 of taxable sales, not profit and not what is left in your account.
What you charge depends on where the sale is made:
Ontario: 13% HST
New Brunswick, Newfoundland and Labrador, Prince Edward Island: 15% HST
Nova Scotia: 14% HST (reduced from 15% on April 1, 2025)
Alberta and the territories: 5% GST
British Columbia, Saskatchewan, Manitoba: 5% GST plus that province's own PST, which you register for and file separately
Quebec: 5% GST plus 9.975% QST, both administered by Revenu Québec rather than the CRA
The upside, and it is a real one: once you are registered you can claim back the GST/HST you pay on business purchases as input tax credits. It is the rare government form that can end in your favour. Our guide to registering for GST/HST covers the process, filing and paying GST/HST covers what happens afterwards, and the sales tax calculator handles the arithmetic in the meantime.
Your filing deadlines
Put these in a calendar now, because interest on a late payment starts quietly and compounds.
Personal return (T1), employed: file and pay by April 30
Personal return (T1), self-employed: file by June 15, but any balance owing is still due April 30
Corporate return (T2): file within six months of your fiscal year-end
Corporate tax owing: due two months after year-end, or three months for a Canadian-controlled private corporation claiming the small business deduction
GST/HST, monthly and quarterly filers: file and pay one month after the end of the reporting period
GST/HST, annual filers: file and pay three months after your fiscal year-end, though self-employed people with a December 31 year-end pay by April 30 and file by June 15
Miss one and the CRA charges both a penalty and interest. Our small business tax deadline guide has the full calendar, and the tax penalty calculator will tell you what a late filing actually costs.
This is exactly the kind of tracking ReInvestWealth's AI Bookkeeper does in the background, so the numbers are ready when the date arrives rather than assembled in a panic the week before. See how it works.
Write-offs and credits
If an expense was reasonable and helped you earn business income, you can likely write it off. Office supplies, advertising, travel, professional fees, a share of your home office and salaries all typically qualify, and credits such as the small business deduction and the scientific research and experimental development (SR&ED) program can apply on top. Our list of the top 10 tax write-offs for Canadian small businesses is the place to start, and tracking business expenses properly is what makes them claimable rather than theoretical.
Payroll, if you have employees
The moment you have employees you have payroll obligations: deducting income tax, Canada Pension Plan contributions and Employment Insurance premiums from their pay, remitting those to the CRA on your remitter schedule, and issuing T4 slips by the last day of February for the previous calendar year. Our 7-step payroll process walks through it.
Keep your records for six years
The CRA requires you to keep your books, records and supporting documents for six years from the end of the last tax year they relate to. Receipts, invoices, bank statements, returns, all of it. Digital copies are fine, which is a mercy, and the reason the Smart Shoebox (your receipt inbox) exists is that nobody has ever successfully kept a paper receipt legible for six years.
How to pay yourself
Paying yourself is not an afterthought, and "withdrawing money when I need it" is not a strategy, particularly if you run a corporation, where casual withdrawals create shareholder loan problems that surface at year-end. Decide the approach once, in advance.
Personal income. As a sole proprietor or partner, the business income is your income. You can take money out of the business account freely, but you need to record the withdrawals.
Salary. In a corporation, paying yourself a formal salary gives you predictable income, creates RRSP contribution room, and builds CPP entitlement. It also means running payroll and remitting deductions.
Dividends. A corporation can distribute after-tax profits to shareholders as dividends. There is no payroll to run, but dividends do not create RRSP room or CPP entitlement.
A mix of salary and dividends. The common approach for owner-managed corporations: enough salary to cover living costs and create RRSP room, dividends on top.
Reinvesting. Leaving profit in the business to fund growth, equipment or hiring is a legitimate and often sensible choice.
Which mix is right depends on your numbers, not on a rule of thumb. Our salary vs dividends guide explains the trade-off, and the salary vs dividend calculator will model your specific situation. Whichever you choose, keep personal and business accounts separate and pay yourself on a consistent schedule.
Your monthly bookkeeping routine
Consistent monthly bookkeeping is what separates a calm year-end from a bad one. Leaving it to December means reconstructing twelve months of decisions from memory and a shoebox, which takes far longer and produces worse numbers. Each month:
Record income and expenses. Log every sale and categorize every business expense.
Match your statements to your records. Compare bank and credit card statements against your books and chase down anything that does not line up.
Track who owes you and who you owe. Outstanding customer invoices and unpaid supplier bills both belong in the picture.
Run payroll. Process pay, make the right deductions, and remit on time.
Handle sales tax. Calculate what you collected and what you paid, and file when your period ends.
Read your financial reports. A profit and loss statement and a balance sheet, looked at monthly, tell you what is working while you can still act on it.
Check actuals against budget. Then adjust the budget, or the plan.
File your documents. Receipts, invoices and statements, organized and findable.
Most of this is repetitive work that software should be doing for you rather than you doing at 11pm. ReInvestWealth's AI Bookkeeper connects to your bank, categorizes transactions, matches receipts to them and keeps your reports current, so the monthly routine is mostly a review rather than data entry. Whatever you use, pick something in your first month rather than your first year-end.
Hiring your first employee
Hire when the workload is consistently more than you can carry and the revenue supports it, not when you are having one busy week. The honest signal is that you are turning down work, or doing low-value work that a hire could take over.
When you are ready, the usual sources are online job boards, your own professional network and referrals, industry associations, and co-op or internship programs with local colleges and universities, which are an underrated way to try someone out. Be clear about the role, the pay and the growth on offer, and be responsive to candidates, because the good ones are talking to other people too.
Whoever you bring on, put it in writing. An employee and a contractor are treated very differently by the CRA, and getting the classification wrong is expensive. Start from our free employee onboarding contract or free independent contractor agreement.
As the team grows, write down how things are done: communication norms, standard procedures, defined roles, business policies, and clear workflows for anything that happens more than once. Then change them as you learn what actually works.
Where to get help and funding
You do not have to work this out alone, and some of the best resources are free:
Government of Canada business services: permits, regulations, registration and program information, straight from the source. Start at the official business services hub
Canadian Federation of Independent Business: advocacy, benchmarking and advice for small businesses across Canada, at CFIB
Industry associations: sector-specific guidance, networking and, often, job boards
Grants and credits: there is more money available than most owners realize. See our list of Canadian small business tax credits and grants, plus the Ontario and Alberta programs
An accountant: the right one is a strategic advisor, not a once-a-year expense. They will save you more than they cost, particularly around structure, compensation and tax planning
Frequently asked questions
Do I need to register my business in Canada?
If you operate under your own legal name as a sole proprietor, some provinces do not require a name registration. In every other case, including any business name that is not exactly your own name, you register provincially or federally. Separately from name registration, you will need a business number from the CRA once you have payroll, GST/HST or corporate tax obligations.
How much can my business earn before I have to charge GST/HST?
$30,000 in taxable sales. You stop being a small supplier as soon as you pass $30,000 in a single calendar quarter, or at the end of the month following the quarter in which you pass $30,000 across four consecutive quarters. Many businesses register voluntarily before that point so they can claim input tax credits on their purchases.
Should I start as a sole proprietor or incorporate right away?
Most people should start as a sole proprietor and incorporate when the numbers justify it. Incorporating earns its keep when your business earns meaningfully more than you need to live on, because profit left in the corporation is taxed at the small business rate rather than your personal rate, or when limited liability genuinely matters for what you do.
When is my first tax return due?
If you are self-employed, file your personal return by June 15 and pay any balance by April 30. If you incorporated, file the T2 within six months of your first fiscal year-end and pay the balance two months after year-end, or three months if you are a Canadian-controlled private corporation claiming the small business deduction.
Do I need a separate bank account for my small business?
A corporation must have its own account, because it is a separate legal entity. A sole proprietor is not legally required to, but should anyway. Separating the accounts is the difference between bookkeeping that takes an hour a month and bookkeeping that takes a weekend.
How long do I have to keep my business records?
Six years from the end of the last tax year the records relate to. That covers receipts, invoices, bank statements and filed returns. Digital copies are acceptable, and are considerably more likely to survive six years than paper.
Getting started
Starting a small business in Canada is mostly a sequence of small, unglamorous decisions made in the right order. Pick the structure that fits, register properly, put the tax deadlines in a calendar, open the separate account, and set up your books before there is anything to catch up on.
Connect your bank account and let the AI categorize your transactions from the first day of trading. CPA-level clean books, 30 days free. Start for free →
A note from our CPAs: This guide is educational and covers the general rules for Canadian small business owners. Tax situations vary by province, industry and structure, so for advice on your specific circumstances, talk to your accountant. (If they use ReInvestWealth, they will already have clean books to work from.)
Written by Behdad Karimi Dermeni, CPA
Co-founder of ReInvestWealth and a founding community builder at Stripe. Behdad built ReInvestWealth to give smart, busy entrepreneurs CPA-level accounting without the CPA-level price tag. Read more · Connect on LinkedIn
Reviewed by Maryam Ajorloo, CPA
Maryam Ajorloo is the co-founder of ReInvestWealth and a CPA who specializes in small business tax, sales tax, and everyday bookkeeping. She helps entrepreneurs keep clean, audit-ready books and make sense of write-offs, filing deadlines, and the numbers behind their business. Read more · Connect on LinkedIn
