Becoming Self-Employed: The First Steps

Going self-employed in the trades is mostly paperwork, not red tape. To the Canada Revenue Agency (CRA), you are self-employed the moment you start working for yourself with the intention of making a profit, whether or not you have registered anything. You do not need a company, an office or a fancy name to begin. You do need to keep clean records, set tax money aside, and tick off a short list of registrations as you grow. This guide is the realistic day-one to week-one checklist.‍‌‌‌​‌​‌‌​​​‌‌‌​‌​​​‌​​​​‌‌‌​‌​​‍

What "self-employed" means to the CRA

The CRA does not issue a permit that makes you self-employed. It looks at the facts: you control how, when and where you work, you supply your own tools, you can make a profit or a loss, and you carry the risk. If that is you, your trade income is business income. As a sole proprietor, you and the business are the same person in law and in tax: your net profit goes straight onto your personal T1 return and is taxed at your personal rates.

That has two consequences worth understanding on day one. First, nobody is deducting tax for you, so you have to set it aside yourself. Second, you are personally liable for the debts and disputes of the business. Both of those are reasons some tradespeople later incorporate (see Sole Proprietor vs Incorporation), but neither stops you starting as a sole proprietor today.

The day-one decisions

You face three early choices, and none of them needs to be perfect:

• Your name. Trading under your own full legal name (for example, Michael Johnson) usually means no name registration. The moment you trade as something else ("Mike's Roofing"), most provinces require you to register that trade name with the provincial registry. Check your own province's registry to confirm whether your own-name setup is exempt.
• Sole proprietor or corporation. Almost everyone should start as a sole proprietor. It is simpler and cheaper, and you can incorporate later once profits justify it. See the full comparison in Sole Proprietor vs Incorporation.
• A separate bank account. Open a business chequing account before you invoice anyone. There is no law forcing a sole proprietor to do this, but mixing personal and business money makes your bookkeeping a nightmare and your deductions hard to defend in an audit. Open it on day one and pay yourself a regular draw rather than dipping in at random.

The week-one checklist

The core registrations a new tradesperson should sort out in the first week, in rough order:

1. Register your business name with the provincial registry if you are using a trade name other than your legal name. Fees vary by province and are modest; check the current fee with your provincial registry before you assume a figure.
2. Get a CRA Business Number (BN) through Business Registration Online at canada.ca. It is free and takes about 15 to 20 minutes. You will need a BN once you register for GST/HST, hire staff or incorporate. See The CRA Business Number and Program Accounts.
3. Open a GST/HST (RT) account if you are already over the $30,000 small-supplier threshold, or if you decide to register voluntarily to claim back tax on your startup spending. See Registering for GST/HST.
4. Open a business bank account in the same week, before the first invoice goes out.
5. Register with your provincial WCB or WSIB if you will have workers on site, or if a general contractor needs your clearance letter to put you on a job. Many provinces let sole proprietors take optional personal coverage; in construction it is worth having.
6. Get general liability insurance. Most residential general contractors will not let you set foot on site without at least $2 million in coverage. Sort this before you start, not after.

Set the tax habit on day one

Because no employer is withholding tax, the discipline that saves new tradespeople is simple: move a fixed percentage of every payment into a separate account the day it lands. A common starting point is 25 to 30 percent to cover income tax plus Canada Pension Plan contributions, adjusted once you know your numbers. You will also pre-pay tax through the CRA instalment system once your tax owing climbs, and you will charge and remit GST/HST once registered. Treating the tax money as "not yours" from the first invoice is the single habit that prevents a year-end crisis.

Common mistakes

• Waiting to register the BN. You do not need it on day one as a bare sole proprietor, but the moment you cross $30,000, hire, or incorporate, you do. Getting it early costs nothing.
• Spending the tax money. The biggest killer of first-year trades. The money you collect for GST/HST and the slice you owe in income tax were never yours to spend.
• Mixing accounts. Running everything through your personal chequing account makes legitimate deductions almost impossible to prove later.
• Working uninsured. One claim without liability cover can end the business and follow you personally.

Common questions

What do I actually need to start?

Not much: a business name (or just your own name), a Business Number and CRA accounts if you will charge GST/HST or hire, registration with your provincial workers' compensation board for most construction work, and the trade licensing and insurance your work needs. You can be trading within days.

Do I have to register for GST/HST right away?

No. You register once your revenue passes thirty thousand dollars over four consecutive quarters, or voluntarily before that to claim input tax credits on startup costs. Below the threshold it is optional.

Sole proprietor or incorporate?

Most tradespeople start as a sole proprietor because it is simple and cheap, and incorporate later when profit, liability or tax planning make it worthwhile. Incorporation gives limited liability and tax deferral but adds cost and paperwork.

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