Sole Proprietorship: Federal and Provincial Requirements

A sole proprietorship is subject concurrently to federal law and to the law of each province or territory in which it carries on business. This page identifies, for a sole proprietorship, which requirements are federal, which are provincial or territorial, and how they differ across the thirteen jurisdictions.

FEDERAL REQUIREMENTS

• Income Tax Act: computation of business income on Form T2125 and federal tax on the proprietor's T1 return; personal instalments; record-keeping (section 230).

• Canada Pension Plan: contributions on self-employment earnings at 11.9% (base and first additional) and 8% (CPP2), except in Quebec, where the Quebec Pension Plan applies.

• Employment Insurance: employer and employee premiums where employees are engaged; optional EI special benefits for the proprietor.

• Excise Tax Act: GST/HST registration, collection, and remittance once the $30,000 small supplier threshold is exceeded.

• Federal programmes administered by the CRA: business number, payroll deductions, and import-export accounts.

• Federally regulated activities: the Canada Labour Code applies instead of provincial employment standards where the business is a federal undertaking (such as interprovincial trucking); federal licensing applies in sectors such as broadcasting and aviation.

• Other federal statutes of general application: the Competition Act, the Personal Information Protection and Electronic Documents Act (outside Quebec, Alberta, and British Columbia), Canada's anti-spam legislation, and the Trademarks Act for protection of the business name as a mark.

PROVINCIAL AND TERRITORIAL REQUIREMENTS

• Business name registration under the provincial partnerships or business names statute.

• Provincial personal income tax on business income, calculated on the provincial Form 428 (or the TP-1 in Quebec) at the rates of the province of residence on December 31.

• Provincial sales tax in British Columbia, Saskatchewan, Manitoba, and Quebec; harmonised sales tax in Ontario and the Atlantic provinces.

• Employment standards, occupational health and safety, and workers' compensation for employees.

• Provincial payroll taxes where payroll exceeds the provincial exemption.

• Professional and occupational licensing, consumer protection legislation, and provincial privacy legislation in Quebec, Alberta, and British Columbia.

• Municipal by-laws enacted under provincial authority: business licences, zoning, signage, and home-based business restrictions.

JURISDICTION-SPECIFIC REQUIREMENTS

• Newfoundland and Labrador: HST 15%; WorkplaceNL; business name registration with the Registry of Companies and Deeds.

• Prince Edward Island: HST 15%; Workers Compensation Board of PEI; business name registration with Corporate and Business Services.

• Nova Scotia: HST 14%; Workers' Compensation Board of Nova Scotia; business name registration with the Registry of Joint Stock Companies, renewed annually.

• New Brunswick: HST 15%; WorkSafeNB; business name registration with Service New Brunswick.

• Quebec: GST and QST administered by Revenu Québec; Quebec income tax on the TP-1 with Form TP-80; QPP and QPIP contributions; registration with the Registraire des entreprises where operating under another name; Charter of the French Language requirements.

• Ontario: HST 13%; Ontario Business Registry name registration renewable every five years; WSIB; Ontario Health Premium payable by the proprietor personally where taxable income exceeds $20,000.

• Manitoba: RST 7%; business name registration with the Companies Office; Workers Compensation Board of Manitoba.

• Saskatchewan: PST 6%; business name registration with Information Services Corporation; Saskatchewan Workers' Compensation Board.

• Alberta: GST only; trade name registration through a registry agent; Workers' Compensation Board-Alberta.

• British Columbia: PST 7%; sole proprietorship registration with BC Registries; WorkSafeBC; Employer Health Tax where payroll exceeds $1,000,000.

• Yukon, Northwest Territories, and Nunavut: GST only; territorial business name registration; territorial workers' compensation boards; 2% payroll tax withheld from employees in the Northwest Territories and Nunavut.

OPERATING IN MORE THAN ONE PROVINCE

• A sole proprietor pays provincial income tax only to the province of residence on December 31, except that business income earned through a permanent establishment in another province is allocated to that province under the Income Tax Regulations.

• The business name must be registered in each province or territory in which the business is carried on under that name.

• GST/HST is charged at the rate of the province of supply, and provincial sales tax registration may be required in provinces in which taxable goods or services are sold.

• Employees are governed by the employment standards and workers' compensation regime of the province in which they work.

SOURCES

• Constitution Act, 1867, ss. 91 and 92.

• Canada Revenue Agency, Guide T4002; Guide RC4022; Provincial and Territorial Tax and Credits for Individuals.

• Provincial business names statutes and ministries of finance.