Many small business and independent service providers are at risk for being classified as personal services businesses (PSB) by the CRA.
If you’re a small business owner, you’ve probably heard of this label before. Personal services businesses are essentially, incorporated employees. They provide independent consultation or service to a client in a way which could be considered an employee-employer relationship. If you are a business with under 5 employees, or business who’s revenue comes from a single client, you are at the greatest risk for PSB classification.
Personal services businesses are subject to hefty tax rates.
If your corporation is considered a PSB, you will have to pay the standard corporate tax rate rather than the dramatically reduced small business tax rate. In addition, personal services businesses are extremely limited in the business expense deductions; while small businesses are able to claim a scope of expenses from advertising to transportation to training costs, personal services businesses may only claim wages and salaries. All in all, a business classified as a PSB will not be able to make the most out of their revenue because of such heavy taxation.
There are a number of ways to protect your business from being considered a personal service business.
The first and most important step, is having a knowledgeable consultant who can advise and represent you if your business happens to be audited by the CRA. That is why we’re here. At CA4IT we lend our clients our specialized expertise catered to small businesses in order to protect them from excess tax rates and penalties. We care about the success of your business; we work to help you make the most our of your revenue. We have the know-how to effectively protect companies from classification as personal services businesses. By allowing CA4IT to guard your business from PSB classification, you can have huge savings on your tax bill.
A pitfall for many small businesses is penalties for following incorrect tax filing procedures. When corporations file their taxes as small businesses, and are found to be personal services businesses, they are subject to penalties and tax audits. Our trusted expertise helps save our small business clients from unnecessary tax expenses. If your small business is faced with a tax audit with the Canada Revenue Agency, we can help. We have never lost a major tax audit case in all of our 25 years of service!