A personal services business (PSB) is a business that provides the services of an “incorporated employee” to a client, whereas normally the incorporated employee would be considered to be a regular employee of the client in the absence of the corporation.
The consequence of the PSB designation is that the “incorporated employee” is denied the benefits of owning a small business. These include access to the small business deduction, the ability to claim a variety of business expenses, and the benefits of being an employee, such as having the employer make contributions to the Canada Pension Plan (CPP) and employment insurance (El), and, ultimately, being able to collect El.
Generally, the PSB rules will apply if the following conditions are met:
– The client has the right to control the amount and type of work done by the contractor.
– The client provides tools, materials and office space or other similar items for the contractor’s use.
– The client pays for work done by the subcontractor based on time (i.e. hourly, weekly).
– The contractor is required by the client to work specific hours of the client’s choosing.
– The contractor only provides services to one client as opposed to multiple clients.
– The contractor rendering the services is a specified shareholder.
– Throughout the year the corporation does not employ more than five full-time employees.
At Quon and Associates we are intimately familiar with Canadian tax law and are always expanding our knowledge of current laws and regulations. Call us or visit our website for more information. 403-250-5111.