A sole proprietorship is an unincorporated business owned by one person, where the business and owner are the same legal entity and income is taxed on the owner's personal return.
A sole proprietorship is the simplest business structure: you and the business are legally the same. Its income and expenses are reported on form T2125 with your personal T1 return, and profits are taxed at your personal rates. There is no separate business tax return and minimal setup.
The trade-offs are unlimited liability, your personal assets are exposed to business debts, and no access to the small business deduction or tax deferral. As profit grows beyond what you need to live on, incorporating usually becomes worthwhile for both liability protection and tax.
A freelance designer operating as a sole proprietor reports $70,000 of net business income on form T2125 with her personal return, paying tax at her personal marginal rate with no separate corporate filing.
Our certified accounting firm handles this for businesses and individuals across Canada, at fixed fees with no surprises.
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