Table of Contents
- 📊 Introduction to Business Income (T2125)
- 🧾 Understanding Business Income Reporting: Sole Proprietors vs. Incorporated Businesses
- 📄 Understanding the T2125 — Statement of Business or Professional Activities
- 🧾 Basics of Business Income: What You Must Know to Report It Properly in Canada
- ⚠️ Business Losses, Hobby Businesses & CRA Red Flags — What New Tax Preparers Must Know
- 💡 Are the Expenses Reasonable?
- 🧾 The GST/HST Rules Every New Tax Preparer Must Understand
- Business Registration in Canada: What New Sole-Proprietors Need to Know
📊 Introduction to Business Income (T2125)
What You Need to Know as a New Tax Preparer
Welcome to the world of business income reporting — an exciting and important area in personal tax preparation. If you’re learning how to prepare Canadian tax returns, this is where things start to feel more like real-world accounting.
Most tax topics you learn earlier (T-slips, credits, deductions) are fairly structured. But business income is different — it requires more interpretation and professional judgment.
🏷️ What Is Business Income?
Business income includes money earned from:
- Self-employment (freelancers, contractors, consultants)
- Small businesses or sole proprietorships
- Partnerships (unincorporated)
- Side-gigs (e.g., Uber drivers, Etsy sellers, tutors, etc.)
These individuals report their business income using Form T2125 – Statement of Business or Professional Activities.
Businesses that are incorporated do not use T2125 — they file a separate corporate tax return (T2).
We will focus here on unincorporated/self-employed individuals.
💡 Why Business Income Is Different
When reporting personal income like employment or investment income, you usually follow slips and straightforward rules.
But business income requires:
✔ Organizing receipts & expenses
✔ Understanding deductible vs non-deductible business expenses
✔ Applying Canada Revenue Agency (CRA) rules correctly
✔ Using judgment to interpret situations
Two different accountants might prepare slightly different results using the same receipts — because many business expenses involve interpretation.
That is why professional judgment matters.
📘 What You Will Learn in This Business Income Unit
This introductory section will walk you through the essentials, including:
✅ Types of Businesses
- Differences between incorporated vs unincorporated
- When a business must use a T2125
✅ Reporting Business Income
- What counts as business income
- How to track and summarize income
✅ Deductible Business Expenses
You will learn about common deductions, including:
- Advertising
- Office supplies
- Meals & entertainment (with limits)
- Professional fees
- Insurance
- And more…
We’ll go line by line to understand what belongs where.
✅ Vehicle Expenses
One of the most important (and often questioned) deductions:
- Tracking mileage
- What counts as business use
- Allowable vehicle expenses and documentation needed
- CRA red flags
✅ Home-Office Expenses
Key learning topics include:
- Eligibility rules
- What portion can be claimed
- Utilities, rent, mortgage interest, property tax rules
✅ Capital Cost Allowance (CCA)
You will revisit depreciation rules, with a more in-depth look at:
- CCA asset classes
- Adding or disposing assets
- Pool system rules
- Difference between rental property CCA and business CCA
✅ CRA Compliance & Audit Risks
You’ll learn:
- What CRA typically reviews in business claims
- Common mistakes that trigger audits
- How to avoid CRA issues by filing correctly
🚨 Why Accuracy Matters
Mistakes in business income reporting can lead to:
- CRA review or reassessment
- Penalties and interest
- Potential audits
Your goal as a future tax preparer is to:
✔ Understand the rules
✔ Apply good judgment
✔ Keep your client compliant and safe from CRA issues
🎯 Final Thoughts
This part of your tax-preparer journey brings you into real accounting skills. Don’t worry — you will build confidence step by step.
By the end of this module, you will know:
- What business income is
- How to properly report it on the T2125
- How to handle common business deductions
- How to avoid CRA red flags
You’re entering one of the most valuable areas in personal tax — congratulations on making it this far!
🧾 Understanding Business Income Reporting: Sole Proprietors vs. Incorporated Businesses
Before you start preparing business tax returns, it’s essential to understand how different types of businesses report their income in Canada. This determines which tax form you use and where business profits are reported.
This section will help you clearly tell the difference between:
- Sole proprietorships
- Partnerships
- Incorporated businesses (corporations)
Because each one follows different tax rules.
👤 Sole Proprietorships (Unincorporated Businesses)
A sole proprietorship is the simplest type of business. It means:
- One individual owns the business
- There is no legal separation between the owner and the business
- Business income is reported on the owner’s personal tax return
The owner reports income and expenses using:
✅ Form T2125 — Statement of Business or Professional Activities
The business profits are added to the individual’s personal income and taxed at personal tax rates.
Common examples:
- Freelancers & consultants
- Ride-share drivers (Uber, Lyft)
- Tutors, photographers, personal trainers
- Online sellers & home-based businesses
If your client says they are “self-employed,” they are likely a sole proprietor unless formally incorporated.
👥 Partnerships (Unincorporated)
A partnership exists when two or more people run a business together without incorporating.
Key points:
- Like sole proprietors, partners report income on their personal tax return
- Still use Form T2125
- Each partner reports their share of income & expenses
- The ownership percentage must be shown on the form
Examples:
- Family-owned businesses run by spouses
- Two siblings operating a service business together
- Friends jointly running a small business
Important:
If a partnership has 5 or more partners, additional reporting is required (Form T5013).
However, most small partnerships you see in personal tax practice will be simple 2- or 3-person partnerships.
🏢 Incorporated Businesses (Corporations)
A corporation is a separate legal entity from its owner(s).
That means:
- It has its own legal identity
- It files its own tax return called a T2 Corporation Return
- Business income does NOT go on the owner’s personal return
Instead, owners are taxed only on what they receive from the corporation, such as:
- Salary (via T4)
- Dividends (via T5)
As a personal tax preparer, you will not file business income for incorporated companies.
You only report what the individual received from the corporation.
❗ If you see business income but the business is incorporated — do not put it on a T2125. This is handled in corporate tax filing, not personal tax filing.
🧠 Why This Matters for New Tax Preparers
When preparing a return, always confirm:
✅ Is this business incorporated or unincorporated?
✅ Should income be reported on T2125 (personal return) or T2 (corporate return)?
Misreporting can cause:
❌ CRA reassessments
❌ Delays in processing
❌ Potential audits
Most small business clients you see early in your career will be sole proprietors or simple partnerships.
Corporate tax returns require separate training, so avoid accepting corporate clients unless you are trained in T2 returns.
📝 Quick Reference Guide
| Business Type | Separate Legal Entity? | Where is Income Reported? | Forms |
|---|---|---|---|
| Sole Proprietorship | ❌ No | Personal tax return | T2125 |
| Partnership (small) | ❌ No | Personal tax return | T2125 + ownership % |
| Corporation | ✅ Yes | Corporate tax return | T2 (plus T4/T5 slips for owners)** |
✅ Summary
Before preparing business income:
- Identify the business structure
- File correctly based on type:
- Sole proprietorship/partnership: Use T2125
- Corporation: Files its own T2 return — not part of personal tax prep
This foundation will help you avoid major errors and know when a client is within your scope versus when they should see a corporate tax specialist.
📄 Understanding the T2125 — Statement of Business or Professional Activities
If you’re self-employed in Canada — whether you run a small side business, offer freelance services, or operate a full-time business — you will report your business income on a special form called the T2125 Statement of Business or Professional Activities.
This form is filed along with your personal tax return (T1). It is not submitted separately — it becomes part of the return to show the Canada Revenue Agency (CRA) how much income your business earned and what expenses you can deduct.
✅ When Do You Use the T2125?
You must complete a T2125 if you earn income from:
- Freelancing or consulting
- Gig work (e.g., rideshare, delivery, online services)
- Sole-proprietorship business activity
- Self-employed professional services (e.g., designers, hair stylists, carpenters, consultants, etc.)
💡 Important: Farming and fishing businesses do not use the T2125. They have their own separate forms and rules.
📊 What Is the Purpose of the T2125?
Think of the T2125 as a profit and loss statement for your business. It reports:
- All business income
- Business expenses
- Net profit or loss (income minus expenses)
This number then flows into your personal income tax return.
🧩 Key Sections of the T2125
The form includes several sections — you may not need all of them depending on your business:
| Section | What It Covers |
|---|---|
| General Information | Details about your business (name, address, start date, etc.) |
| Industry Code | CRA activity code that matches your business type |
| Business Income | All money earned from business activities |
| Cost of Goods Sold (if applicable) | For businesses selling physical products |
| Business Expenses | Deductible business costs |
| CCA (Depreciation) | Claiming capital cost allowance for equipment & assets |
| Business-Use-of-Home | Claim home office expenses (if eligible) |
| Partners Information | Only if you operate a formal partnership |
📌 The Industry Code — A Key Detail
The CRA requires an industry code to describe your type of business.
Choosing the right code matters because:
- It tells the CRA what kind of business you operate
- CRA compares your expenses to typical expenses in that industry
Example: If you select a real estate agent code, CRA wouldn’t expect to see a “cost of goods sold” amount, because a realtor doesn’t sell products.
Incorrect coding can trigger unnecessary questions or review — so take a minute to pick the code that best fits your work.
🧾 Common Business Expenses You Can Claim
Some typical deductible expenses include:
- Office supplies
- Advertising & marketing
- Vehicle expenses (if used for business)
- Professional fees (accounting, legal)
- Bank fees & business interest
- Internet & phone (business portion)
- Business-use-of-home expenses
These reduce your taxable income — but must be reasonable and documented.
🎯 Key Takeaways
- T2125 is required for self-employed Canadians or those earning business income.
- It reports your income, expenses, and profit/loss.
- Picking the correct industry code helps avoid CRA issues.
- Filed as part of your personal T1 tax return — not separately.
- You only complete the sections that apply to your business.
💬 Final Tip for Beginners
When you’re new to tax preparation, the T2125 can feel intimidating — but with practice, it becomes one of the most commonly used forms. As you work through returns, you’ll learn to recognize typical income and expense patterns and become more confident completing this schedule.
🧾 Basics of Business Income: What You Must Know to Report It Properly in Canada
When you’re preparing tax returns for self-employed individuals or small business owners, reporting business income can feel very different from employment income. Unlike a regular employee who receives a T4 slip, people who run a business do not receive an automatic tax slip showing their income and expenses.
Instead, they must track and report their own business numbers, and these get entered on the T2125 form (Statement of Business or Professional Activities).
This section will help you understand the foundation of reporting business income — the part that happens before filling out any tax forms.
📍 Where Does Business Income Information Come From?
For business clients, there are no T-slips. Instead, you’re working with bookkeeping records.
As a tax preparer, you need to determine:
- How the client tracks their revenue
- How they track and categorize expenses
- Whether they already have organized financial records or not
You may receive:
✔ A bookkeeping spreadsheet
✔ Organized summaries of income/expenses
✔ Accounting software reports (e.g., QuickBooks, Xero, FreshBooks)
✔ Bank statements to verify deposits
✔ A shoebox or folder full of receipts 🫣
Your job is to compile these into a business income statement for tax reporting.
💡 Who Is Responsible for the Numbers?
The client is responsible for providing accurate information.
As a tax preparer:
- You prepare the return based on the client’s records
- You do not “invent” numbers
- The client signs the return confirming the information is true
If the client provides totals, you can use them — but you must apply reasonability checks (more on this in later lessons).
✨ Think of this as a compilation engagement — you’re organizing and reporting the client’s data, not auditing it.
🛠️ What About Expenses?
Clients may provide:
- Itemized expense lists
- Receipts
- Bank/credit card statements
- Accounting reports
The CRA expects two things if they ever review the file:
| Requirement | Meaning |
|---|---|
| Receipt (voucher) | Shows what was purchased |
| Proof of payment | Bank/credit card record proves they paid |
So the client should keep receipts and payment evidence.
⚠️ Personal vs Business Expenses
A key beginner rule:
✅ You can only deduct expenses that were incurred to earn business income.
❌ Personal expenses are not deductible.
Examples clients sometimes try wrongly to deduct:
| ❌ Not deductible | ✅ Possibly deductible |
|---|---|
| Family groceries | Meals with clients (with restrictions) |
| Home kitchen renovation | Business use portion of home office repairs |
| Kids’ cellphone bills | Phone portion used for business |
| Personal vacations | Business-related travel |
As a preparer, expect to separate personal vs business when reviewing receipts.
📉 Can a Business Have a Loss?
Yes — if business expenses exceed income, a business loss can happen.
Losses can be:
- Used to reduce other income in the year (e.g., employment income)
- Carried back 3 years
- Carried forward 10 years
However, repeated losses may attract CRA attention later — because the CRA expects a business to aim to make a profit, not just create tax deductions.
🧠 Practical Considerations for Preparer Workflow
When preparing returns for business clients, consider:
- How organized the client is
- Whether bookkeeping is needed before tax prep
- How much time the file will take
- Whether receipts or summaries are complete
This matters especially during tax season — some files take much longer than standard T4 employee returns.
⏰ Poor organization from the client = more prep time + higher fees.
✅ Key Takeaways
- Business income doesn’t come from slips — you compile it from the client’s records.
- The client is responsible for the accuracy of information.
- You must ensure expenses are business-related and reasonable.
- Losses are allowed — but should make sense.
- Good bookkeeping = faster, smoother tax preparation.
⚠️ Business Losses, Hobby Businesses & CRA Red Flags — What New Tax Preparers Must Know
When preparing taxes for self-employed clients, one of the biggest things to watch for is business losses — especially large losses or losses year after year.
While a business can legitimately lose money (especially in the early years), the Canada Revenue Agency (CRA) pays close attention to patterns that suggest someone might not be running a real business — but instead treating a hobby as a business just to claim expenses and reduce taxes.
Let’s break down how to recognize hobby-type situations and how to handle them as a beginner tax preparer.
🎯 Business vs. Hobby — What’s the Difference?
A real business exists to make money.
A hobby exists for enjoyment — even if some money comes in sometimes.
Example of a hobby disguised as a business:
Someone with a full-time job buys expensive photography equipment and occasionally shoots a small project but mainly wants to write off equipment, gas, and home office expenses.
Example of a real start-up business:
A photographer who invests in equipment, advertises, builds a client list, and eventually plans to work full-time in photography.
🧐 CRA’s Key Test: “Reasonable Expectation of Profit”
The CRA asks one main question:
Is there a reasonable expectation this business could eventually earn a profit?
The CRA may question the business if:
- The person already has a full-time income elsewhere
- The “business” activity appears more like a hobby (e.g., ATV tours, photography for fun)
- There are losses for multiple years in a row
- There is little or no revenue
- There is no real marketing or effort to grow
📬 What Happens if CRA Suspects a Hobby?
If a taxpayer reports losses:
- Repeated losses (e.g., 3-4 years in a row), OR
- Very large losses
The CRA may send a questionnaire asking:
- What the business is
- How revenue is generated
- What marketing or business development is being done
- Why losses are occurring
- Plans for future profit
If the CRA decides it’s not a real business:
❌ Losses may be denied
❌ The prior returns may be reassessed
💰 The taxpayer may owe tax + interest
This isn’t an audit — it’s simply a check triggered by patterns.
👩💼 Your Role as a Tax Preparer
As a beginner tax preparer:
✅ Ask questions when clients show losses
✅ Explain the CRA’s expectations and risks
✅ Use professional judgment
✅ Document your client discussions
❗ Remember: The client decides what gets reported.
Your job is not to audit — but to advise.
If a client insists on claiming questionable losses, you can:
- Proceed and note it was client-provided info, or
- Decline to continue if you feel it is not legitimate and puts you at risk
🚫 Examples of Hobby-Type Situations
| Activity | What CRA Might Think |
|---|---|
| Weekend photography with no marketing plan | Likely hobby |
| ATV tours for fun at the cottage, no revenue | Hobby |
| Gardening “business” with mostly personal spending | Hobby |
| Travel blog with large travel write-offs but no real income | Hobby |
✅ Legitimate Start-Up Business Situations
| Situation | Why It Looks Legitimate |
|---|---|
| New business with advertising & website | Shows business effort |
| Part-time job while building client base | Reasonable transition |
| Detailed records of attempts to earn income | Supports business intent |
| Investing in equipment & marketing to grow | Shows long-term plan |
📝 Practical Tips for Beginners
| Tip | Why It Matters |
|---|---|
| Ask how the client earns income | Shows legitimacy |
| Ask what marketing they do | Proves intent to grow |
| Look for invoices, receipts, records | Helps defend losses |
| Warn clients about annual repeated losses | Manages expectations |
| Trust your instincts — if it feels like a hobby, discuss it | Protects you |
🧠 Key Takeaways
- Business losses can be deducted — but must be legitimate.
- Repeated or large losses trigger CRA review.
- The CRA checks whether the business has a real profit motive.
- You must use professional judgment and educate clients.
- If uncomfortable, you can decline the engagement.
💡 Are the Expenses Reasonable?
Understanding the CRA’s “Reasonable Business Expense” Test
When preparing tax returns for self-employed individuals, most expenses are straightforward and clearly related to earning income. But sometimes, you’ll see expense amounts that feel unusually high — and that’s when you need to use professional judgment.
The Canada Revenue Agency (CRA) expects tax preparers to consider whether expenses are reasonable. This means asking:
Would a reasonable, prudent business person spend this money to earn income?
This is also the same test Canadian tax courts use when reviewing disputed expenses.
✅ What Does “Reasonable” Mean?
A business can claim expenses that:
- Have a clear business purpose
- Are helpful or necessary to generate income
- Are appropriate in amount and nature for that type of business
Example:
A real estate agent spending money on advertising and client events makes sense — these activities help them find clients and sell homes.
But the CRA might question expenses that are:
- Unusually large for the business size
- Personal in nature (e.g., vacations disguised as business travel)
- Not backed by documentation
- Not clearly tied to income-earning activities
🧠 Case Example: Real Estate Agent Advertising
Imagine a real estate agent earning $80,000 in commission income and claiming $35,000 in advertising.
Is that reasonable?
It depends.
If that marketing campaign leads to big income growth the next year (for example, $300,000 in commissions), then yes — that expense looks like a smart business investment.
But if income stays the same or declines, and there is no evidence of a serious marketing effort, the CRA may question the deduction.
⚖️ What Happens in a CRA Review?
The CRA might:
- Ask for receipts and proof
- Question the business purpose
- Request details on how the expense helps earn income
If receipts are missing, technically the CRA can deny the expense.
However, if a case goes to tax court, judges sometimes allow reasonable amounts, especially for sole proprietors, based on industry norms and common-sense business needs.
⚠️ Important: Relying on court leniency is not a strategy — always advise clients to keep receipts.
🚗 Another Example: Vehicle Expenses
If a real estate agent drives a typical vehicle and uses it heavily for showing homes, a reasonable estimate might be:
- Annual vehicle costs: $10,000
- Business use: ~70%
- Reasonable deduction: ~$7,000
Even if receipts are missing, a court may allow a reasonable portion because the expense clearly supports the business.
But:
Buying a luxury sports car and claiming it entirely as a business expense?
💥 That will raise red flags — unless the business actually needs that type of car (almost never).
🎯 Key Guiding Questions for Beginners
When reviewing expenses, ask yourself:
| Question | Why It Matters |
|---|---|
| Does this expense help the client earn business income? | Must directly support business activity |
| Is the amount realistic for this business type and size? | Prevents excessive claims |
| Would a reasonable business owner spend this much? | Core CRA test |
| Are receipts and logs available? | Required for verification |
| Does the expense look personal in disguise? | CRA denies personal spending |
If something feels unusual, ask the client questions, document their explanation, and ensure they have support.
💬 Practical Example Conversations With Clients
You: “I see $20,000 in travel expenses. Can you tell me how this trip was connected to earning business income?”
You: “This equipment expense is quite high for your business size. Do you have invoices and a business case for the purchase?”
You’re not accusing — you’re clarifying and protecting your client.
🛑 Situations That May Trigger CRA Review
- Very high expenses compared to revenue
- Luxury or lifestyle-type spending claimed as business expenses
- No receipts or documentation
- Frequent losses year after year (covered in a previous topic)
- Personal hobbies treated as businesses
🧭 Your Responsibility as a Tax Preparer
You are not the CRA — you don’t audit clients.
But you are expected to:
✔ Understand the reasonability rule
✔ Ask questions when things don’t look right
✔ Explain CRA expectations to clients
✔ Document conversations and client responses
If a client insists on claiming expenses you believe are unreasonable, you can decline to file the return.
✅ Final Takeaway
Most business expense claims are simple and legitimate.
But when something stands out as unusually high, use common sense and the “reasonable business person” test.
If the expense genuinely helps earn income — and the client has proof — it’s usually deductible.
If it looks personal, excessive, or poorly documented — it may be challenged.
🧾 The GST/HST Rules Every New Tax Preparer Must Understand
When you begin preparing tax returns for self-employed individuals in Canada, you’ll quickly discover that income tax and GST/HST often go hand-in-hand. Many business owners not only need help filing their T2125 (business income form) — they also rely on their tax preparer to handle their GST/HST obligations.
Even though GST/HST is a separate tax system from income tax, you must understand the basics so you don’t miss important compliance rules for your clients.
✅ What Is GST/HST?
GST/HST is a sales tax charged on most goods and services in Canada.
- GST (Goods & Services Tax) — applies across Canada
- HST (Harmonized Sales Tax) — used in certain provinces (Ontario, Nova Scotia, etc.)
If a business is registered for GST/HST, they must:
| Action | Meaning |
|---|---|
| ✔ Charge GST/HST on sales | Collect tax from customers |
| ✔ File GST/HST returns | Report sales and tax collected |
| ✔ Remit GST/HST to CRA | Send collected tax to the government |
| ✔ Claim Input Tax Credits (ITCs) | Get back GST/HST paid on business expenses |
📌 The $30,000 Small Supplier Rule
The most important rule for beginners:
If a business earns more than $30,000 in taxable sales in any 12-month period, they must register for GST/HST.
This applies to:
- Sole proprietors
- Freelancers
- Contractors
- Small business owners
If revenue is under $30,000, registration is optional — the business is called a small supplier.
🧐 What If a Client Passes $30,000 and Isn’t Registered?
This happens a lot with new businesses.
If a client earns $50,000 and never registered or charged GST/HST, the CRA may:
- Require them to register retroactively
- Make them pay the GST/HST they should have collected — even if they didn’t charge customers
💡 That means your client could suddenly owe thousands of dollars out of pocket.
As a tax preparer, you should watch for this and advise clients early.
💰 Why Registering Can Be Beneficial
A registered business can claim Input Tax Credits (ITCs) — meaning they get back the GST/HST paid on business expenses.
Example (Ontario):
| Item | Amount |
|---|---|
| Office rent | $10,000 + $1,300 HST |
| Client pays | $11,300 |
| Small supplier (not registered) | Deducts $11,300 expense on T2125 |
| Registered business | Deducts $10,000 expense + receives $1,300 refund |
So being registered can increase cash flow, especially for businesses with significant expenses.
🧾 Filing Rules You Must Know
| Point | Explanation |
|---|---|
| GST/HST is separate from income tax | Different filing, different account |
| Most sole proprietors file annually | Usually same deadline as personal return |
| Some file quarterly or monthly | Based on election or CRA requirements |
| Income reported on T2125 excludes GST/HST | Revenue shown should be before tax |
| Expenses exclude GST/HST when registered | Because ITCs are claimed separately |
🚦What You’ll See in Real Practice
When preparing returns, you may encounter:
| Situation | Meaning |
|---|---|
| Client registered → filed GST/HST | Revenue & expenses shown net of tax |
| Client not registered | No GST/HST charged, full amounts shown |
| Client should be registered but isn’t | ✅ Red flag — needs CRA attention |
🎓 Beginner Tip
Whether your client is a freelancer, Uber driver, consultant, or online seller — ask early:
“Are you registered for GST/HST?”
If income is close to $30,000, remind them about the small supplier threshold.
🧠 Pro Tip for New Tax Preparers
GST/HST is a specialized area in Canadian tax.
If you plan to work with business clients, consider learning:
- GST/HST registration rules
- Input tax credits
- Place-of-supply rules (different provinces, different rates)
- Filing periods & deadlines
- Common CRA audit triggers
Understanding GST/HST will make you much more valuable to clients.
✅ Final Takeaway
| Key Concept | Summary |
|---|---|
| $30,000 Threshold | Register once sales exceed $30,000 |
| Separate Filing | GST/HST returns are not part of the T1 |
| Revenue on T2125 | Enter revenue before sales tax |
| Expenses if registered | Claim expenses without tax + ITCs separately |
| Important Skill | Knowing GST/HST boosts your tax career |
Business Registration in Canada: What New Sole-Proprietors Need to Know
When you start earning money from a business — even a small side-gig like photography, tutoring, baking, or consulting — you may wonder:
✅ Do I have to register my business?
✅ Who do I register with — the province or CRA?
✅ What accounts do I need for taxes?
Let’s break it down step-by-step in beginner-friendly language.
1. What Does “Business Registration” Mean?
Business registration usually refers to registering your business name with your province, not with the Canada Revenue Agency (CRA).
This is different from registering for tax accounts.
When You Need to Register
You must register a business name if you operate under a name that is NOT your legal personal name.
Example
| Scenario | Registration Required? | Why |
|---|---|---|
| Jane Smith runs photography and gets paid as “Jane Smith” | ❌ No | Payments go to her legal name |
| Jane Smith runs photography as “ABC Photography” | ✅ Yes | Bank needs proof she owns “ABC Photography” to deposit payments |
So, if you want a brand name, you must register it with your province.
Why Register?
Registration allows you to:
- Operate under a business name
- Open a business bank account
- Deposit cheques made out to the business name
- Build business credibility
2. Business Registration vs CRA Accounts
These are two separate things:
| Type | Who You Register With | Purpose |
|---|---|---|
| Business name registration | Province (e.g., ServiceOntario, Service BC) | Allows you to operate under a business name |
| Tax accounts (GST/HST, payroll, etc) | Canada Revenue Agency (CRA) | For collecting and paying taxes |
Just registering a business name does not mean you are automatically registered for taxes.
3. CRA Business Number & Tax Accounts
When you interact with CRA for business purposes, you get a Business Number (BN).
It starts as a 9-digit number, and you add accounts depending on what you need:
| Account Type | Code | Purpose |
|---|---|---|
| Business Number | (9-digits only) | Base identifier |
| GST/HST account | RT | For charging/remitting GST/HST (if required) |
| Payroll account | RP | If you hire employees and deduct payroll tax |
| Import/Export account | RM | For importing or exporting goods |
| Corporate income tax | RC | Automatically assigned to corporations only |
Most new sole-proprietors only need an RT (GST/HST) account — and only if required.
GST/HST registration is mandatory once your total business revenue exceeds $30,000 in 12 months
(unless your activity is exempt — e.g., certain health or education services)
4. Other Provincial Accounts You May Need
Depending on your business and province, you may also need:
| Registration | Purpose |
|---|---|
| Workers’ Compensation (WSIB/WCB) | Required if hiring employees or working in certain industries (e.g., construction) |
| Provincial Sales Tax (PST) in BC, SK, MB, QC | If you sell taxable goods/services |
| Employer Health Tax (ON, BC) | Only if payroll exceeds a province-specific threshold |
Note: Sole-proprietors with no employees usually don’t need payroll or workers’ compensation accounts.
5. Key Takeaways
| Concept | Explanation |
|---|---|
| Register business name | Provincial step — only if using a name other than your legal name |
| CRA Business Number | Federal step — used for tax accounts |
| GST/HST registration | Required when revenue > $30,000 (or voluntarily before) |
| Payroll account | Required if you hire employees |
| Business name ≠ Tax account | They are separate processes |
Simple Startup Checklist for New Sole-Proprietors
| Step | Do You Need It? |
|---|---|
| Start selling goods/services | ✅ Yes — you’re in business |
| Register business name | Only if using a business name instead of your legal name |
| Open business bank account | Recommended |
| Register for GST/HST | Required once you exceed $30,000 |
| Register payroll account | Only if you hire employees |
| Keep proper records | ✅ Always |
| File business income on T2125 | ✅ As a sole-proprietor |
Beginner Tip
You can operate a business in Canada without registering a business name or GST/HST — as long as you use your legal name and earn under $30,000.
Many new freelancers and gig workers start here.
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