Today, many IT consultants have their company incorporated and they benefit from the many tax advantages it brings with it. The CRA has recently started cracking down on IT consulting companies and reassessing their tax files. In such cases, some could end up having to pay upwards of one hundred thousand dollars in personal/corporate taxes. If the CRA characterizes your IT consulting firm as a personal service corporation, you could end up losing many of the tax benefits you’ve been able to enjoy. Personal service corporation risk has become a serious issue for many IT consulting companies and it requires the advice of a professional accounting expert.
The risk of being classified as a personal service corporation is something IT consultants really need to think about. When a well paid IT consultant opens their own company, incorporates it and begins working for their former employer. This is the primary ; it could cause a significant loss of tax revenue that the government could be bringing in. In order to prevent the above from occurring, the CRA has implemented new regulations in the Income Tax Act. It is one of the reasons why the CRA is considering some IT consultants as personal service corporations, as the CRA believes that these individuals could be considered an employee.
Minimizing Personal Service Corporation Risk
Fortunately, there are certain preventative steps an IT consultant can take in order to reduce the risk of being considered a personal service corporation. At the same time, it is extremely important to have anthe first and most important is tp hire an experienced accounting or tax expert who can provide you with unparalleled representation in the event of a CRA audit. CA4IT has been standing strong behind IT professionals who need expert representation if a PSC attack were to ever occur.
The process in which you conduct business tells the CRA a lot about whether you’re a personal service corporation or not. A personal service corporation receives specific details on how business should be conducted for the client. However, if you don’t want to fall under this classification, you should have full control over the manner in which you provide results for your client.ensure your contract and your conduct don’t exibit any degrees of control. Your client and the contract should indicate what they want you do not how they want you to do it. The analogy I often use is a painter. You would tell a painter what room you want painted and what colour you want it painted but you would not tell him how to paint or what hours to work. This being said if your painter showed up at midnight to paint your bedroom he would probably lose the contract.
To avoid looking less like a personal service corporation, you want to establish a positive professional business profile for yourself. Develop an online presence for your company, create business cards and try to stay off of the company phone directory. When you are on the company’s phone list, you won’t look so much like an independent IT consultant. To get prepared for the risks that come along with being considered a personal service corporation, you want to contact our professional representation from CA4IT at 1-800-465-7532.