Personal Service(PSB) risk is the greatest threat facing independent consultants.
Under section 125(1) of the income tax act independent consultants working through corporations can be deemed essentially to be employees of their client. As such they lose many of the tax benefits of being an independent contractor. for more information on what PSB is please read PSB Risk – Are you Safe?
While the PSB is not a new issue there has been a renewed push from CRA. A special project put on by CRA to identify potential PSB’s identified several hundred contractors. These contractors were asked to complete a special survey. Based on this survey over 40 consultants were asessed as Personal Service Businesses. We believe it is essential that consultants don’t attmept to manage this issue on their own. However, we have developed a sample survey response. You can download a copy of the survey here
As a result of this special project there are a number of ongoing cases. Most of these case are currently in the appeals process and several have chosen not to fight their own lawsuit but to base their case on the outcome of what is being know in the industry as the Hamilton case. The most recent case to go to court is an independent consultant that fought and lost a PSB case in the the Tax Court of Canada. We believe, based on previous Federal Court of Appeal cases, that the judge may not have correctly interpreted the four Wiebe Door criteria. For a summary of the judgment please Click Here
For a the complete judgement please click Here
Our Firm beleives that with adequate protection that consultants should not be afraid of PSB Risk. We have developed a number of resource to educate and protect the industry Listed below are links to several of these tools:
Podcast with APCC