Can you have a sole proprietorship and a corporation at the same time?

Two different taxpayers

A sole proprietor "does not have separate legal status from the business" and pays personal income tax on its net income. A corporation "is a separate legal entity" that files its own return. So when you own both, the CRA sees two taxpayers: you, and the company. Everything else follows from that.

How each one files

Sole proprietorship: Form T2125 on your T1

Business income from a sole proprietorship is reported on Form T2125, Statement of Business or Professional Activities, with your own income tax return. If you have more than one, the CRA says you "have to complete a separate form for each business or professional activity you have, if you have two or more of either." Two side businesses, two T2125s.

Self-employed individuals generally have to use a December 31 year-end. Some eligible individuals can use another method with a different fiscal period, reconciled on Form T1139.

Corporation: its own T2 with GIFI statements

A corporation has to file a T2 return no later than six months after the end of every tax year, even if it owes no tax, and attach complete financial statements or the General Index of Financial Information (GIFI) with the necessary schedules. GIFI is a standard list of codes for the balance sheet and income statement.

The corporation's tax year is its fiscal period, which cannot be longer than 53 weeks. A new corporation can choose its year-end, so it does not have to match your December 31.

Business Number: one for you, one for the company

The CRA runs a "one legal entity, one BN" policy: an entity gets one BN "regardless of the number of business locations or businesses that are owned by that business entity." A sole proprietor is one entity. The CRA also says that if you already have a BN, "you cannot register for another one for the same business or legal entity". New program accounts, such as GST/HST, are added to the BN you already have.

So all your sole proprietorships share your one BN. The corporation is a different entity and gets its own. If you incorporate federally, the BN comes with the incorporation.

An unincorporated business only needs a BN when it registers for a CRA program account, such as GST/HST or payroll. A side business that has not registered for anything may have no BN at all.

GST/HST: registered by person, tested with your associates

GST/HST registration is a program account on a BN, so it follows the legal entity. Your sole proprietorships are all you, and generally a registrant files one return per reporting period covering all of its commercial activities. (A registrant can apply to file separate returns for branches or divisions, on Form GST 10.) The corporation registers separately, on its own BN.

The $30,000 small supplier threshold is the part to read carefully. The CRA says a sole proprietor counts "all revenues (before expenses) from your worldwide taxable supplies from all your businesses and those of your associates". Under the association rules in GST/HST Memorandum 2-2, a person other than a corporation is associated with a corporation if the corporation is controlled by that person, or by a group of persons that includes them and whose members are each associated with one another. If you control your corporation, its revenue generally counts toward your test. Association has more rules than this, so check the memorandum or ask your accountant before relying on the small supplier exemption.

Meals: same receipt, different treatment

The 50% limit on food, beverages and entertainment comes from section 67.1 of the Income Tax Act and applies to both. Where it shows up is different.

• Sole proprietorship. On the T2125 you claim only the allowable part. The CRA's page for line 8523 says the most you can claim is 50% of the lesser of the amount you incurred and an amount that is reasonable.
• Corporation. The GIFI income statement reports what the financial statements show, and GIFI code 8523 is "Meals and entertainment". Then Schedule 1, which reconciles financial statement income to income for tax purposes, adds back "Non-deductible meals and entertainment expenses" on line 121.

The 50% limit has exceptions, for example meals you bill to a client or a party for all employees at a location. The line 8523 page lists them.

Worked example

This is a made-up example. Dev owns Northgate Consulting Inc, which he controls, with a June 30 year-end. He also runs a photography business as a sole proprietor.

On GST/HST: photography alone is $18,000, under $30,000. But Dev controls Northgate, so they are associates, and the small supplier test counts both. Together that is $78,000, so Dev generally cannot treat the photography business as a small supplier. When exactly registration starts depends on the timing rules on the CRA page.

Keeping the books apart

The CRA's rule is "Keep separate records for each business you run." With a corporation in the mix, that also means keeping the company's money and yours apart.

• Each sole proprietorship: its own income, expenses and receipts, so each T2125 can be filled out on its own.
• The corporation: its own books, its own bank account, its own receipts, and its own GST/HST return if registered.
• Between you and the corporation: any company expense you paid personally, or personal expense the company paid, recorded as an amount owed. The CRA's Folio S3-F1-C1 covers shareholder loans. If you share a card, see how to split one card across businesses.
• Receipts for all of it: for as long as the CRA can ask for them.

Side by side

A short US note

The same split works in the US. A person can run a sole proprietorship and own an LLC or corporation. The IRS says "If you owned more than one business, complete a separate Schedule C for each business." An LLC is taxed as a corporation, a partnership, or as part of its owner's return, depending on its members and elections. A single-member LLC that has not elected corporate treatment generally goes on the owner's Schedule C.

How BlueAnchor fits

BlueAnchor keeps a separate set of books for each business and for personal spending. It lays out T2125 lines for each sole proprietorship, T2 GIFI lines for a corporation, the GST/HST return, and US Schedule C lines, with the receipt behind each figure. It does not file anything and gives no tax advice. The Every business plan covers every business you run for one price: see pricing.

General information, not tax advice. BlueAnchor does not file taxes and is not affiliated with or endorsed by the CRA or the IRS. For your situation, talk to your accountant.