Just running a ‘tiny side gig’? CRA strongly disagrees
All you ever wanted to know about soccer pirate ships -- I mean, sole proprietorships.
Readtime: ☕ 8 min read
Welcome to The Loophole, my weekly newsletter that gives solopreneurs the legal clarity they need to grow protectively and profitably — before expensive mistakes happen.
Inside today’s loophole:
Lawyer goes edgy
Your questions about doing business by yourself
Answers Google or Your Chat Daddy won’t give you
CRA cares a lot
Questions
Lawyers get asked a lot of questions.
Me? Almost every conversation I have with a business owner starts with business basics.
The number one topic: sole proprietorships versus corporations.
And I’ve heard some wild ideas about sole proprietorships, so today we’re going to bust some of the biggest myths I hear every single week.
(Scroll to the end for my second most-asked question)
The conversation I have almost every day
I speak to multiple business owners every day, and most of those chats start in the same place:
Me: Soooo…., are you incorporated?
Biz Owner: Nope. I’m a sole proprietorship. I’ll incorporate when I’m serious.
Or even,
Me: Tell me about your business
Biz Owner: It’s doing great! Money coming in! But I don’t really have anything set up, so it’s not a real business yet.
Ahem.
In my meetings with clients, I’m very gentle, but here at The Loophole, I can get a little edgy, so I’m going to give it to you straight.
“Friend, you already have a legal business setup. It’s a sole proprietorship. Stop pretending you don’t.”
Whether you like it or not, if you create anything for monetary value and get paid, without an employer, you already have a sole proprietorship. And a sole proprietorship is a legal thing.
What’s really going on with sole props in Canada
One of my favourite fun facts: the moment you carry on business for your own benefit and no one else is involved, like an employer, you have a sole proprietorship. Ta-da! Instant business!
So if Mary Joseph sells cookies at a holiday market this year, she’s automatically selling them as a business called “Mary Joseph.”
Even if the cookie sale feels small and casual, CRA and business law have already kicked into gear.
{A sole prop isn’t completely “automatic” though. You may not need to register a business name if you trade only under your exact legal name, but once you add words like “Consulting,” “Studio,” or “Kitchen,” you usually must register that name.
Take it from a lawyer: “I never registered” is not a defence if there’s a problem later.}
The big questions I hear every week
Here are the questions based on common myths that cause the most trouble:
❓Can I just start as a sole prop and incorporate later when I’m more serious?
No—incorporate now if you want to build something real. You don’t need to “earn” the right to incorporate.
More often than not, it makes sense to incorporate from day one. You do not have to “earn” the right to incorporate by starting as a sole proprietor first.
Any business owner I work with, I look to incorporate ASAP because it’s not just a legal structure; it’s a mindset. Legally, it makes sense if they plan to build something that can grow profitably, is tax-beneficial, helps limit their risk, and may be sold one day.
Mindset-wise, my favourite mantra applies: begin with the end in mind. Starting out as a corporation trains your habits and posture to act big before you are big.
❓Do I need to register my business name?
Yes—if you’re using anything beyond your legal name, you probably need to register it.
You cannot simply choose any business name and skip registration. Name registration is how the province and the public know who is behind the business.
If Mary trades under “Mary Joseph,” she may not need to register. The moment she calls her business “Mary’s Kitchen,” she’s using a business name that generally must be registered with the province. Ignoring this can lead to problems with banks and suppliers, and, in some cases, fines.
❓Is filing taxes the same as when I was an employee?
No, you now have to track income and expenses and calculate your own profit. It’s more work.
For taxes, a sole prop owner’s return is not the same as a T4 employee who just plugs in a slip and moves on.
You still file a personal T1, but now you have a business section with its own rules, deadlines, and record-keeping. You have to report all business income and expenses, keep books and records, track instalments, and, in some cases, meet different deadlines. You are responsible for calculating your profit, not just reporting what someone else paid you.
❓Can I write off anything I buy for my business?
No—only reasonable expenses actually used to earn income count. CRA cares what you bought, not which card you used.
Not every “business” purchase is deductible. An expense must be reasonable, incurred to earn business income, and supported by receipts and records.
Some categories—meals, vehicles, home office, big equipment—have extra limits or special rules. Tossing everything on the “business credit card” does not magically turn personal spending into tax write-offs. CRA cares about what you bought, not just which card you tapped.
❓Do I need to charge GST/HST?
Yes—once you hit $30,000 in revenue, you must register, charge, collect, and remit GST/HST.
Collecting taxes is not just for corporations. Once your total worldwide taxable revenues from all your sole prop activities cross $30,000 in a 12-month period, you must register, charge, collect, and remit GST/HST.
But, I recommend my clients register when revenue is still at $0 because:
It’s easier to build the admin habits from the beginning,
optics—you look more legit when you’re billing clients,
regular bookkeeping and quarterly remittances help you act like the CEO you’re becoming, and
Business owners who face tax reality early have fewer tax problems down the road.
❓Can I pay myself a salary?
No, you and the business are the same person. You can’t be your own employee or deduct your own salary.
In a sole proprietorship, you and the business are the same legal person. You cannot be your own employee and deduct your own “salary” as an expense.
The business earns profit; you pay personal tax on that profit. Money you pull out is just a draw, not a deductible wage. Payroll for yourself only becomes an option when there is a separate legal entity, like a corporation.
❓Are my personal assets protected?
No—zero protection. If your business gets sued, they can go after your house, savings, everything.
A sole prop has zero liability shield. Simply calling yourself a “business” does not create a barrier.
If someone claims Mary’s cookies caused them harm and sues “Mary Joseph’s Kitchen,” any liability is Mary’s to pay. Creditors can go after her personal bank accounts, investments, and, in some situations, her home.
To manage that risk, you look at business insurance, careful contracts, and talking to a lawyer about incorporation.
❓Can I just use my personal bank account?
Technically, yes, but it’s a terrible idea. CRA needs clear records, and mixing accounts makes everything harder.
Here’s my myth buster of all myth busters: CRA cares a lot. They care about clear, supportable records.
Yes, you’re technically allowed to use a personal account for business, but it’s a terrible idea.
Mixing everything together is like a pumpkin-spice-sea salt-mustard-sugar cookie: it will give you indigestion and worse.
A single mixed account makes it harder to prove what’s business and what’s personal, increases the risk of missed deductions, and makes any review or audit more painful. A separate account for business income and expenses is basic best practice, even for a tiny sole prop.
❓Can my partner and I share one sole prop?
No—two or more people means you need a partnership agreement or a corporation.
Let’s get some English language straightened out: “sole” means one.
If two or more people own and run a business together, they’re in partnership territory, or need to look at incorporating. Partnerships have their own default rules, risks, and tax treatment.
That usually means a proper written partnership agreement or a corporation if you’re building something with someone else. You cannot stretch a sole prop to fit multiple owners.
🤖Have a robot help figure this out🤖
If you’re in Canada and you sell your own stuff, you’re not “playing business.” You’re in business.
And that means the rules of sole proprietorship already apply to you, whether you’ve thought about them or not.
It’s time to understand the legal implications of your side gig.
Copy this into ChatGPT or Claude:
“You are a Ontario business lawyer. I run a business in Canada. Help me figure out my next best step. Here’s my situation: The name I use with clients is: [fill in] My business income goes into: [personal account / separate business account] My annual revenue is roughly: [amount] Number of people involved in the business: [just me / me and a partner] Current structure: [nothing set up / sole prop / incorporated / not sure] Based on this, what’s the single most important thing I should do next to get my business properly set up?”
Build smart,
Sonya
P.S. Why this almost newsletter became the “Soccer Pirate Ship” issue.
More than any legal question, people ask me about my Substack.
They often want to know: “Sonya, what’s your writing process like?”
Mine starts with a transcript. I speak into my phone and talk through, then I go back and format them later. For this one, I was talking all about “sole proprietorships,” but my transcript app turned it into “soccer pirate ship,” which I think I love.
Because if I think about it, when you run a sole prop in Canada without understanding any of the legal, it can feel exactly like you’re captaining a very chaotic soccer pirate ship.