5 Step Checklist to Starting a Business in Ontario

If you want to start a business in Ontario, there are specific legal and governmental requirements you need to be aware of. Before you get started, make an informed decision about what type of business you will run and what structure it will have, both of which have different implications for your personal and business taxes.

The corporate tax specialists at T2inc walk you through the 5 steps to starting a small business in Ontario.

Note: These steps to starting a small business in Ontario do not necessarily have to be completed in order. We recommend reading through the entire list of tasks and deciding how to proceed for your specific business, location, financial and personal situation.

1. Prepare your business identity

Before taking legal and financial steps to create your business, make sure you have a solid understanding of exactly what product or service you intend to offer, and who your target consumers are. Being fully prepared by understanding the ‘why’ of your business will make legal and regulatory decisions much easier to make.

Get ready to make your small business idea a reality by:

• Confirming that there is a market for your product or service
• Being able to clearly express what problem your business will solve for consumers
• Doing market research to understand who your ideal customer is, and developing a buyer persona describing your ‘hero’ client
• Understanding your competitors and being able to clearly define why it is viable for you to start a business in the same field
• Understanding the costs associated with your business idea, such as sourcing, shipping, marketing, licensing, insurance, rent, online presence, utilities, etc.
• Confirming there is enough demand for your product or service to make starting a business possible
• Choosing a location for your business and verifying zoning laws and legal requirements so that you have a permanent business address to use in your paperwork
• Choosing a name that is unique and available for online marketing (such as for a website address and social media accounts) to avoid legal problems. To confirm you have chosen a name that is not already protected, visit the NUANS database of incorporated businesses, the Canadian Trademark database and the Ontario Business Registry. If you decide to incorporate, you will also need to get a NUANS report from a registered search company. Incorporated businesses in Ontario must have a legal entity at the end of their name (for example, Ltd. Inc. or Corp.) Your name can be in English and/or French. It is also possible to incorporate using a number, and protect your name simply by registering it as a trademark. If you need help choosing an appropriate business name that will meet all legal requirements for starting a small business in Ontario, contact T2inc tax accountants.
• Designing a logo and any other visual elements you will use to promote and identify your business

2. Prepare your financials

It takes money to start a business. Even if you qualify for a grant from the Government of Canada, you will likely still need to contribute a significant amount of your own money to the venture.

Remember to separate your personal and corporate finances by opening a separate business bank account. For corporations, this is a legal requirement, but there are benefits even if you operate your business as a sole proprietorship or partnership. (See below for the different types of business structure.)

This can also help simplify your business accounting or other paperwork when comes time to file your small business taxes in Ontario or do an audit. Fees associated with the business account can be deducted as a business expense.

Doing a financial assessment will help you develop a clear idea of your business goals. In particular, consider:

• Profitability (How much money does your business need to make for you to consider it a success? This varies according to personal goals.)
• Breakeven (This describes the point at which your business has returned the initial investment of both money and time.)
• Pricing (Consider what you will need to charge for your product or service so that you can meet your financial targets without losing customers to competitors.)

3. Make your business legal

Now you’re ready to make your business a reality for legal purposes. To do this, you will need to choose a business structure, register and/or incorporate, apply for a GST/HST number, and obtain business licenses and permits.

Let’s take a look at each of these steps one at a time.

a. Choose a business structure

There are four types of business structure to choose from when you start a business in Ontario. Each type has different associated legal obligations, funding possibilities, liability and tax rates.

It is important to understand the implications of your choice of business structure before proceeding to register or incorporate your business. Some types of business can later be changed, and some cannot.

Sole proprietorship

A sole proprietorship is owned by one person. This is the easiest way to start a business. It allows for some flexibility because you can always choose to incorporate later.

With this type of business, you can deduct losses and expenses from your personal income, and you earn all the profit. On the other hand, you are responsible for all debts and losses (and creditors can take your personal assets and your business to pay debts), and your income is taxable at your personal rate.

Partnership

A partnership is owned by two or more people. Sharing responsibilities can make some elements of setting up a business easier, such as sharing costs for start-up.

Keep in mind that while expenses and losses can be included on your tax returns all partners are responsible for all debts and losses.

Corporation

Incorporation allows you to keep your business activities and responsibilities separate from your personal financial life.

As a corporation owner you have limited liability, you can transfer ownership, and you have access to more capital and grants.

Setting up a corporation is costly, and the corporate tax rules are more complex than for simpler types of business. You will need to provide annual filing and corporate records, which can mean that you will need to hire a business tax accountant to make sure your business activities are legal and accurate.

It is always recommended that you consult a lawyer or advisor before incorporating your business.

Co-operative

A co-operative is a type of corporation that is organized and controlled by its members. A co-operative can be a for-profit or non-profit entity.

If you start a co-operative, you will not be solely responsible for debts and losses. Members vote to make decisions, which can help to dilute responsibility, but can also be time-consuming. A co-operative only works if all members participate.

b. Register or incorporate

Depending on the type of structure you have chosen for your business, you next need to register or incorporate your business. Let’s take a look at the main points of each option.

Register a business in Ontario

Registering a business is less costly and faster than incorporating, however there several points to consider depending on the type of business structure you have chosen and the extent of your planned business activities:

• If you start a sole proprietorship with employees, facilities or offices in Ontario, you will need to register provincially with the Ontario Business Registry. If you intend to be active in more than one province, you will need to register federally also.
• You can register a business as a sole proprietorship, a partnership or a tradename under a corporation if your business is already incorporated (as part of your incorporation process)
• You will need to register for a 9-digit Ontario Business Identification Number (BIN) form Service Ontario so that you can register for an account with the Canada Revenue Agency (CRA). Note that your BIN is not the same as the Business Number provided by the CRA.
• One or more people can register a business, and these individuals can be new or non-residents of Ontario
• Your business name is not protected under registration
• You remain personally liable for the business (trade name excluded)
• You will be taxed at personal income tax rates
• Registration has to be renewed
• You have limited options if you wish to change the status of your business
• You remain liable for your business debts and losses, so your home, vehicles and personal investments could be at risk

Registration may be a better choice if you plan on living on the profits of your business from month to month.

Incorporate a business in Ontario

If you can afford to incorporate, there are many advantages to taking this route. A corporation is a separate entity from the person who creates it, making your burden of responsibility lighter than if you register. However, there are several points to consider before incorporating your business in Ontario:

• If you plan on creating a co-operative that will operate exclusively within Ontario, you can choose to incorporate your co-operative provincially. Always take the time to consult a business tax professional to be sure you are following the appropriate rules and regulations of incorporation.
• You will need adequate funds to pay for incorporation.
• You can incorporate a business either as a numbered incorporation or a named incorporation.
• Incorporation facilitates taking on outside funding (in the form of low-interest loans and the sale of shares) or partners.
• One or more people can incorporate.
• You do not need to be a permanent resident or Canadian citizen to start a business in Ontario.
• Your business name is protected (within certain limitations).
• Your business will be taxed at the lowest rate in Canada.
• Incorporation never expires or requires renewal.

Incorporation may be a better choice if you intend to reinvest a significant portion of your earnings, but keep in mind that incorporating means increased reporting obligations. It is generally necessary to engage the services of a corporate tax specialist for your Ontario business tax filing requirements.

c. Apply for a GST/HST number

Most businesses in Ontario need a GST/HST number, which involves registering with the federal government for a GST-HST account and collecting GST/HST on all taxable sales.

Businesses that make less than $30,000 gross in four consecutive calendar quarters may not have to register for GST/HST, but it is recommended that you verify your business status with a qualified tax accountant to be sure you avoid any potential penalties and continue to earn as much income as possible.

d. Obtain business licenses and permits

Some types of businesses require specific licenses and permits. This can only be determined by consulting relevant municipal, provincial and/or federal regulations. Use BizPal to see which permits or licenses you will need for your business.

Specific rules and regulations may also apply. Be sure you are aware of the legal requirements concerning accessibility in Ontario, employment standards, and Ontario workplace health and safety before you get up and running.

4. Write a business plan

You may be wondering why this step was not first on the list. Shouldn’t anyone plan before they take action?

According to the Harvard Business Review, the best time to write a business plan is when you are ready to launch – talking to customers, getting your product ready for market and thinking about promotion.

An effective business plan should go into detail about your business goals, your potential customers, how you will be competitive, and your financial goals and plans.

Writing a plan too early means not having the information you need to do it well. Running a business involves more than just planning: the most successful entrepreneurs are in a constant state of adjustment and reevaluation, always taking action to propel their business forward.

Small Business Enterprise Centres in Ontario can help you write up a good business plan. You can also rely on site like Futurpreneur or BPlans. Go ahead and contact a small business accountant for assistance with the financial aspects of your business plan.

5. Financing and taxation

Starting a business in Ontario will cost money, and you will also need money to keep your business going until it begins to turn a profit. You will need to consider funding, insurance and taxation when you assess your financial situation.

Small business funding

Consider carefully whether you have the means to start a business on your own. If you need additional funding, there are various resources you can turn to:

• The Province of Ontario has funding programs to support small businesses in Northern Ontario, and grants programs for some types of Ontario small businesses.
• The Government of Canada offers grants, tax credits, financing programs, wage subsidies and more for small businesses in Ontario and elsewhere in the country.

Business insurance

Business insurance is not mandatory in Ontario. It is, however, highly recommended because it can protect you and your business’ operation, properties and ability to generate income.
We recommend learning about the different types of business insurance and contacting an insurance professional to make a good decision.

There are a variety of options for small business insurance, depending on what type of business you are starting. Here are a few examples:

• Commercial property insurance
• General liability insurance
• Business income insurance
• Workers’ compensation insurance
• Data breach insurance
• Commercial auto insurance
• Professional liability insurance

Taxation

Small businesses in Ontario pay different tax rates depending on their structure (see above). You will need to anticipate which taxes you will owe before starting your business.

For unincorporated businesses and partnerships, you must report your personal income and make yearly contributions to the Canada Pension Plan (CPP).

Learn about corporations tax in Ontario, and find out whether you need to register and pay Employer Health Tax. Remember to check whether you are eligible for business tax credits.

• Sole Proprietorship: The business owner is expected to pay tax when the tax is due for the year, when the business owner's income is less than expenses, when the business owner sells a capital asset or has a taxable capital gain during the year, when the business owner makes Canada Pension Plan or Quebec Pension Plan (CPP/QPP) payments on self-employment income or pensionable income for the year, when the business owner accesses special Employment Insurance (EI) benefits for self-employed persons, or when the business owner receives a notice from the government to file a return.
• Partnership: All of the above, but as an individual partner and up to the limit of the equity held in the partnership.
• Corporation: The corporation is required to file a separate tax return from the individual owner or owners. Owners will be required to select a fiscal year end for the corporation that is up to 12 months from the date of incorporation.  It may be best to hire a tax accountant to assist you with this new tax system and help you achieve the best possible tax situation based on your circumstances.

Here are some things to consider when you assess your tax situation:

• Filing Deadlines and Penalties
• How to get a tax return
• Preparing and filing returns
• Where to send returns
• Eligible federal tax credits
• Eligible dividends
• Provincial and Territorial Corporate Income Tax

Grow your business with T2inc tax accountants

If you want to start a business in Ontario, there is plenty of help available. It will take time and effort, but doing the proper research and assessing your taxation, legal and financial needs before you start your business will save time and money in the long run.

Remember that you do not have to face the complexities of business taxation laws on your own. The business tax accountants at T2inc can help with everything from planning to filing your T2 tax returns via a convenient and reliable online service.

Contact us now to make your dream of owning a business easier with help from experienced taxation professionals!