A sole proprietorship can go by many different names including freelancer, self employed, independent contractor, small business, entrepreneur. The relevant feature of a sole proprietorship is that it is any type of business that is not incorporated.
Examples of Sole Proprietorships
There are various types of businesses that operate as sole proprietorships, such as:
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If you sell web design or photography services in your spare time
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If you sell goods on eBay on Etsy etc, on an ongoing basis
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If you have a website that makes money from ads
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If you have a website that makes money from affiliates
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If you are a writer with one or more publications
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If you sell your services on Upwork or Fiver or similar sites
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If you receive donations as an individual for your work
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If you are a driver for Uber or other ride sharing services
What Are the Tax Obligations of Sole Proprietors?
Sole proprietors might have to register their businesses in the province in which they are located. This is usually dependent on provincial regulations and is discussed in depth in our post on registering your sole proprietorship in each province
Income Tax Obligations
Any business that earns income and is not incorporated is required to report its income on the T2125 form, on an annual basis, which is simply part of your personal tax return. On this schedule you must report your total sales/revenues and related business expenses.
Businesses may deduct reasonable expenses from the income that they earn. Many businesses have expenses that are common, such as rent, office expenses, telephone and internet expenses, and hosting for your website etc. Other expenses might be specific to the business type. For example:
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Fees that you pay to Uber or other ride sharing services
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Publishing costs for your book
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Photography equipment
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Commissions paid to intermediary sites such as Ebay, Etsy, or Fiverr for listing your goods or services
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Cost of raw materials to make your product
Business that claim expenses should maintain copies of all receipts, bills, invoices, and other source documents. For more details on tax deductible small business expenses
Sales Tax (GST/HST and QST) Obligations
All businesses that have sales exceeding $30,000, in the last 4 quarters, must register for sales taxes. There are some exceptions to this rule, which is discussed in detail at should you register for HST/GST. You can also register for GST/HST and QST at any time before you reach $30k in sales which might make sense if you want to seem more credible as a business or if you have high start up expenses since you can claim back the GST/HST and QST on these expenses.
For an expanded discussion of taxes for sole proprietors, check out my video below:
