By Joanne DeMichele on Tuesday, 10 September 2024
Category: CRA

Should I be a Personal Services Business (PSB)?

In Canada, a Personal Services Business (PSB) is a type of business that the Canada Revenue Agency (CRA) designates under certain conditions. The rules governing PSBs are stringent, and the tax treatment of a PSB is less favorable compared to other types of corporations. Here’s an overview of what constitutes a PSB and its implications:

Definition of a Personal Services Business

A Personal Services Business is typically a corporation that provides services where the individual performing the services (the incorporated employee) would be considered an employee of the client if it were not for the existence of the corporation. In other words, the corporation exists primarily to provide the services of the individual to a single client, and the individual would otherwise be considered an employee of that client.

Criteria for a PSB

The CRA uses several criteria to determine if a corporation is a PSB:

Tax Implications of a PSB

Avoiding PSB Classification

To avoid being classified as a PSB, businesses and individuals can take certain steps:

Examples of PSB

Conclusion

Operating as a Personal Services Business can lead to significant tax disadvantages, so it’s important to carefully evaluate your business structure and seek professional advice if necessary. Understanding the criteria and implications of PSB classification can help you make informed decisions and structure your business to minimize tax liabilities.

For more information, refer to the CRA's guidelines on PSBs and so that you set up your PSB correctly, contact our office first.

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