I think it's a good idea to register a business, although it is not compulsory in Ontario if you use your own name as the business name (without Inc. Corp, Ltd or wahatever).
So if you're John Smith you can operate as John Smith (but not as John Smith Internet Services)and you can still claim tax deductions as a business (sole proprietor).
Of course, the other scenario (not using only your name) requires you to register the business officially.
In Ontario you can do it over the Internet, using a credit card. I believe the fee is $80 (sole proprietorship) these days. Just make sure company name does not exists, or pay them to search it for you.
One important thing to consider is GST. Generally if you expect to make less than $30K/year in sales then you do not need to register for GST. Also, you do not charge GST from non-canadian residents.
GST can be a pain in the neck because once you get a GST number you have to fill forms every 3 months, whether you made a sale to a Canadian or not. But on the other hand, you save on your own GST expenditures using a basic principle:
GST Payable to Government = GST you paid to conduct business - GST you collected from sales.
Now, sole proprietorship caries some benefits but there are also associated risksd. The biggest risk is personal liability. If someone sues you, they sue your entire estate (wife and kids excluded, but their possessions included)
For tht reason yo may consider a Delaware Corporation. The cost is higher (anywhere between $300 and $1000 depending on options you choose) . The benefits are lower taxes, but the complexity of reporting and paperwork is far greater.
just my $0
CDN