Business Release: March 11, 2011

NEWS for all Independent Contractors, Consultants, Project Managers,Recruiters and Staffing Agencies:

If the Canada Revenue Agency (CRA) finds your consulting company to be a “Personal Services Corporation” (PSC), you may face tax reassessments exceeding $100,000.

The CRA made changes to the Income Tax Act (ITA) to deny tax advantages if an IT Contractor can “reasonably be regarded as an employee”.

The CRA recently audited 234 small businesses and found 96 to be Personal Service Corporations, and every one of them was re-assessed on their Small Business Deduction and Expenses. Independent contractors, companies, staffing agencies and recruiters need to know the facts concerning CRA’s PSC designation.

What Is Personal Service Corporation Risk or “PSC Risk”?

The CRA’s Personal Service Corporation rules are designed to ensure that regardless of the form of business organization, namely whether it be a corporation, sole proprietorship or an “incorporated employee”, the “incorporated employee” pays the same amount of tax.

If deemed to be a PSC, the contractor cannot claim a small business deduction, and other deductions are limited. To determine if a company is a Personal Service Business, the CRA considers the following:

1. The number of employees
2. Whether they have a sole client or many clients,
3. Whether the contractor has a degree of control over the work done,
4. Who owns the tools used for the work done,
5. Whether the independent contractor has a chance to profit or risk a loss, and
6. The degree of integration.

Can PSC Risk Be Minimized?

PSC Risk can be minimized by taking preventative measures and ensuring you have strong, experienced representation to defend you against CRA’s PSC Risk challenges.

The National Association of Computer Consultant Businesses (NACCB) memberships account for over 24,000 contractors in Canada and roughly $2.5 billion dollars in annual IT Contractor billings. The NACCB is actively involved in the PSC Risk issue: at the February, 2011 AGM, they determined that all parties involved must focus on one key issue, and that is their interpretation of a PSC versus the CRA’s. They also said their mandate was to “educate contractors to use ‘industry experts’ for their accounting needs, and recommend contractors contact CA4IT-Wall & Associates

CA4IT is the NACCB’s only ISO Certified Accounting Firm Member. Since our inception in 1984,  we have been championing the income tax rights of incorporated independent contractor IT Professionals. CA4it contractors are protected by our unique” tax audit representation insurance” that provides complete protection from any CRA audit”.  We are also actively involved in the education action plan along with NACCB, and therefore wish to highlight the fact that CA4IT has created a template response for inquires from the CRA.

Our research shows that contractors (with the support of recruiters) do themselves a great disservice, and often incorporate through cheaper government services, thereby exposing themselves to PSC Risk.

Due to the uncertainty regarding CRA and Contractor exposure to PSC Risk and to support the IT industry, we have lowered our incorporation fee to IT contractors to our cost. This special price will cover our own costs for Ontario incorporation fee, the minute book and the seal. We are not billing for our services.

We hope this will assist contractors and recruiters alike in making the RIGHT choice to seek audit protection. CA4IT is committed to bringing awareness around issues their clients face from the CRA, as well as providing professional, highly customized service, audit protection and huge savings to their valued clients. Call Jody to book an appointment today to discuss minimizing your PSC Risk.

Contact Information

Jody Bishop

Director Marketing & Business Development
1.800.465.7532 Ext. 246
j.bishop@ca4it.com