Starting a Small Business in Canada as a Newcomer: Permits, Taxes, and Funding

Why Entrepreneurship Is a Powerful Path for Newcomers

Canada has a strong entrepreneurial ecosystem, and newcomers play a major role in it. Immigrants in Canada are more likely to start businesses than Canadian-born residents, and newcomer-founded companies create jobs, drive innovation, and strengthen local communities. If you have a business idea, industry experience, or entrepreneurial drive, starting a small business can be a rewarding pathway to financial independence and long-term success in Canada.

But launching a business in a new country also brings challenges: unfamiliar regulations, tax requirements, licensing systems, financing barriers, and different customer expectations. This comprehensive guide will help you navigate the essentials so you can launch legally, avoid costly mistakes, and build a solid foundation for growth.

In this guide, you'll learn how to choose a business structure, register with the government, obtain required permits, understand tax obligations, open business banking, hire employees, and access funding and support programs designed for newcomers.

Can Newcomers Start a Business in Canada?

In most cases, yes. Your eligibility depends on your immigration status:

• Permanent residents and citizens: Can start and operate businesses without restrictions
• Protected persons/refugees: Generally can start businesses, depending on status conditions
• Temporary residents (work permit/study permit): May be restricted based on permit conditions. Some work permits allow self-employment; many do not. Check your permit carefully and consult IRCC guidance
• Visitors: Cannot actively work in or operate a business in Canada without proper authorization

Before investing money, confirm your legal work rights through IRCC or an authorized immigration professional.

Step 1: Choose Your Business Structure

Your legal structure affects taxes, liability, setup cost, and reporting obligations. The three most common structures for small businesses in Canada are:

Sole Proprietorship

• What it is: You and your business are legally the same entity
• Pros: Cheapest and easiest to start, minimal paperwork, straightforward tax filing
• Cons: Unlimited personal liability (your personal assets can be at risk), harder to raise capital
• Best for: Freelancers, consultants, small service businesses, low-risk startups

Partnership

• What it is: Two or more people share ownership
• Pros: Shared resources and skills, easy to set up
• Cons: Shared liability (unless limited partnership), potential partner disputes
• Best for: Businesses with trusted co-founders and clear partnership agreements

Corporation

• What it is: Separate legal entity from owners
• Pros: Limited liability, tax planning opportunities, easier to attract investors
• Cons: Higher setup costs, more paperwork, annual corporate filings required
• Best for: Businesses with growth plans, higher risk, or need for outside funding

Many newcomers start as sole proprietors and incorporate later as their business grows. This can be a practical, cost-effective approach.

Step 2: Choose and Register Your Business Name

If operating under your exact legal name (for sole proprietors), you may not need a trade name registration in some provinces. But if using a business name (e.g., "Maple Leaf Home Services"), you usually must register it.

Name Search and Registration

• Check name availability in your province
• For corporations, conduct a NUANS search (federal and some provinces)
• Register your business name provincially or federally

Useful resources:

• Corporations Canada (federal incorporation)
• Ontario Business Registry
• BC Registry Services
• Registraire des entreprises du Québec

Tip: Secure your domain name and social media handles early, even before launch.

Step 3: Get a Business Number (BN) from CRA

A Business Number (BN) is a unique 9-digit identifier from the Canada Revenue Agency (CRA). You need it to manage tax accounts.

You can register online using CRA's Business Registration Online service: canada.ca/register-business.

Tax Accounts You May Need

• GST/HST account: Required if annual taxable revenue exceeds $30,000 (small supplier threshold), optional below threshold
• Payroll account: Required if you hire employees
• Import/export account: Required if importing or exporting goods
• Corporate income tax account: Required for incorporated businesses

Step 4: Understand GST/HST Rules

GST/HST is Canada's value-added tax system.

• GST: 5% federal tax
• HST: Harmonized tax in some provinces (federal + provincial combined)
• PST/QST: Separate provincial taxes in some provinces (e.g., BC PST, Quebec QST)

If your total taxable revenue exceeds $30,000 over four consecutive calendar quarters, you must register for GST/HST and charge it on eligible sales. Even below $30,000, voluntary registration can make sense if you want to claim input tax credits (ITCs) for business expenses.

Always separate sales tax collected from your operating cash and set it aside. Many new entrepreneurs get into trouble by spending tax money and then being unable to remit to CRA.

Step 5: Get Required Licenses and Permits

Many businesses need licenses from one or more levels of government:

• Municipal: Local business license, zoning approval, signage permits, home-based business permit
• Provincial: Industry-specific licenses (construction, childcare, food handling, real estate, transportation, etc.)
• Federal: For regulated sectors like aviation, telecom, food imports, health products

Use the government permit finder tool: BizPaL to identify licenses by business activity and location.

Common Regulated Sectors

• Food service and catering
• Daycare and child services
• Construction and trades
• Transportation (taxi, trucking, delivery)
• Health and personal services (some esthetics, massage, etc.)
• Financial services and insurance
• Alcohol sales and events

Operating without required licenses can result in fines, closure orders, and legal liability.

Step 6: Open a Business Bank Account

Separate personal and business finances from day one. A dedicated business account helps you:

• Track income and expenses clearly
• Prepare taxes accurately
• Demonstrate professionalism to clients and suppliers
• Avoid CRA bookkeeping issues

Bring registration documents, ID, and BN (if available) when opening your account. Compare monthly fees, e-transfer limits, transaction allowances, and merchant services if accepting card payments.

Step 7: Set Up Bookkeeping and Record-Keeping

CRA requires businesses to keep proper records, usually for at least six years. Good bookkeeping is essential.

Minimum Setup

• Business bank account and (if needed) business credit card
• Monthly expense tracking
• Invoice system with sequential invoice numbers
• Digital storage for receipts and contracts
• Quarterly review of taxes owed (GST/HST, income tax)

Popular bookkeeping tools in Canada include QuickBooks, Xero, and Wave. Many newcomers start with spreadsheets, but accounting software becomes necessary as transactions grow.

Step 8: Understand Income Tax Obligations

Sole Proprietors and Partnerships

Business income is reported on your personal tax return using CRA Form T2125 (Statement of Business or Professional Activities). You pay personal income tax on net profit.

Corporations

Corporations file separate corporate tax returns (T2). Corporate tax rates for Canadian-controlled private corporations are generally lower on first-tier active business income due to the small business deduction, but rules are complex and vary by province.

Installments

If you owe enough tax, CRA may require quarterly tax installments. Missing installments can trigger interest and penalties.

Step 9: Hiring Employees and Payroll Rules

If hiring employees, you must:

• Register a CRA payroll account
• Withhold and remit CPP, EI, and income tax
• Issue T4 slips annually
• Follow provincial employment standards (minimum wage, overtime, vacation pay, statutory holidays)
• Register for workers' compensation in your province (WorkSafeBC, WSIB, WCB, etc.) where required

Misclassifying employees as independent contractors is a common and costly mistake. If unsure, consult an accountant or employment lawyer.

Step 10: Business Insurance and Risk Management

Insurance protects your business from unexpected losses. Common policies include:

• Commercial general liability: Covers third-party injury/property damage claims
• Professional liability (errors & omissions): For service businesses and consultants
• Commercial property: Covers equipment, inventory, physical location
• Cyber insurance: Increasingly important for online businesses
• Commercial auto: If using vehicles for business

Also consider contracts, clear terms of service, and data privacy practices to reduce legal risk.

Funding Options for Newcomer Entrepreneurs

Access to startup capital is often a major barrier. Common funding sources include:

Personal Savings and Family Support

Most small businesses are initially self-funded. Start lean and validate demand before large spending.

Bank Loans and Lines of Credit

Traditional banks may require credit history, collateral, or business track record. Newcomers can improve approval odds with a solid business plan, cash flow projections, and co-signers where appropriate.

Microloans and Community Lenders

Non-profit lenders and community organizations may offer small startup loans with mentorship.

Government Programs

• Futurpreneur Canada: Financing + mentoring for entrepreneurs ages 18-39 (futurpreneur.ca)
• Business Development Bank of Canada (BDC): Loans and advisory services for small businesses (bdc.ca)
• Regional development agencies: FedDev Ontario, Western Economic Diversification, ACOA, CED, etc.
• Provincial grants and tax credits: Vary by sector and location

Newcomer-Specific Supports

Several settlement and economic development organizations provide newcomer entrepreneurship support, including training, mentorship, and market-entry support.

Creating a Strong Business Plan

A business plan improves decision-making and helps secure financing. Include:

• Problem and solution
• Target customers
• Competitor analysis
• Pricing and revenue model
• Marketing and sales strategy
• Startup and operating costs
• Cash flow projection (12-24 months)
• Risk assessment and mitigation

Keep assumptions realistic. Conservative projections are more credible than overly optimistic numbers.

Common Mistakes New Entrepreneurs Make

• Starting without validating customer demand
• Ignoring permits and licensing requirements
• Mixing personal and business finances
• Underpricing services/products
• Poor bookkeeping and missed tax deadlines
• Spending GST/HST collected instead of remitting
• Trying to do everything alone (no accountant, no mentor)
• Not understanding local market preferences

Helpful Programs and Support Organizations

• Canada Business Network: canada.ca/business
• CRA Small Business Resources: canada.ca/cra-business
• BizPaL Permit Finder: innovation.ised-isde.canada.ca/innovation/s/
• BDC: bdc.ca
• Futurpreneur: futurpreneur.ca
• Local Chambers of Commerce: Networking and local business guidance
• Settlement agencies: Many offer entrepreneurship workshops and referrals

Final Thoughts

Starting a business in Canada as a newcomer is absolutely possible—and often a smart long-term path. Success requires more than a great idea: you need legal compliance, financial discipline, customer focus, and strong support networks. Start small, build carefully, and use available government and community resources.

If you take the time to set up properly from the beginning—right structure, right registrations, right taxes, and right permits—you'll avoid costly mistakes and position your business for sustainable growth in Canada's dynamic economy.

WelcomeAide supports newcomer entrepreneurs with practical, multilingual guidance. Use our AI Newcomer Navigator anytime to get answers on permits, business setup, and Canadian settlement resources.