For Incorporated Consultants
Incorporated Professional & IT Consultant Tax in Ottawa
If you bill clients through your own corporation, there is one CRA rule that can quietly cost you more than any other: the personal services business (PSB). When the CRA decides an incorporated worker is really acting like an employee of one client, the corporation loses the small business deduction and the general rate reduction, pays an additional 5% federal tax, and can deduct almost nothing beyond the salary it pays you.
Nour & Daniels Tax works with incorporated IT consultants, engineers, and professionals across Ottawa to assess that risk before the CRA does, file the corporate return correctly, and structure how you work and pay yourself to stay onside.
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Know The Stakes
What PSB status actually changes
If your corporation is found to be carrying on a personal services business, these are the CRA consequences, verified against canada.ca.
| Normal small corporation | Corporation carrying on a PSB |
|---|---|
| Claims the small business deduction | No small business deduction |
| Gets the general rate reduction | No general rate reduction |
| Standard corporate tax rate | Full rate plus an additional 5% federal tax |
| Deducts ordinary business expenses | Deductions limited to salary and benefits paid to you, certain costs of selling property or negotiating contracts, and legal costs to collect amounts owing |
| Payer treats you as a vendor | The payer must issue your corporation a T4A |
An IT consultant incorporates and bills $160,000 in a year to a single client whose office she works in, on their equipment, on their schedule. If the CRA classifies the corporation as a PSB, it cannot claim the small business deduction or the general rate reduction, pays an extra 5% federal tax, and cannot deduct home office, software, or supplies, only the salary it pays her and a few narrow items. The effective tax on that income is far higher than for a normal small business. The fix is almost always cheaper when planned in advance than corrected after a review.
Are you at risk of being a PSB?
The CRA looks at whether you would be considered an employee of the client if your corporation did not exist. A few factors drive that decision.
- Control: Does the client set your hours, location, and how the work is done, or do you? More client control points toward a PSB.
- Tools and equipment: Do you supply your own laptop, software, and workspace, or does the client provide them?
- Chance of profit and risk of loss: Can you profit from running the work efficiently and lose money if it goes wrong, like a real business, or are you simply paid for time like an employee?
- Integration: Are you woven into the client's organization, with a title, a team, and a desk, or do you operate as an independent vendor with multiple clients?
One long-term contract with a single client, working onsite under their direction, is the classic PSB profile. We assess where you actually fall.
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How We Help
From risk review to a return you can stand behind
PSB risk assessment
We review your contracts and how you actually work, then tell you plainly where you stand and what would strengthen or weaken your position.
Structure and compensation planning
We plan how you bill, what you can change in how you operate, and your salary-versus-dividend mix, coordinated with your corporate and personal returns.
Correct T2 filing
If PSB rules apply, we file the return the right way: the limited deductions, the additional tax, and the schedules the CRA expects, so the return holds up.
Ongoing support
As your contracts change, so does your risk. We keep the assessment current and handle any CRA correspondence on your behalf.
Be Prepared
What to bring for a PSB review
The more we can see of how you actually work, the sharper the assessment.
- Your incorporation documents
- Current and recent client contracts
- Your last filed T2 and notice of assessment
- Records of how you invoice and get paid
- Details of your clients (how many, how long)
- Any CRA letters about your corporation
Help Centre
Incorporated consultant tax questions
What is a personal services business (PSB)?
A PSB is a corporation that the CRA considers to be providing the services of an incorporated employee. In plain terms, if you would be an employee of the client were it not for your corporation, the corporation may be carrying on a PSB. The classification removes valuable tax advantages and limits deductions. (Source: CRA: what is a PSB.)
I incorporated to work as an IT consultant. Am I automatically a PSB?
No. Incorporating does not make you a PSB on its own. It depends on how you actually work: who controls the work, who provides the tools, whether you carry real business risk, and how integrated you are into the client. Many incorporated consultants are not PSBs. The point of a review is to know rather than guess.
What extra tax does a PSB pay?
A PSB cannot claim the small business deduction or the general rate reduction, and it pays an additional 5% federal tax on its PSB income. Combined, that makes the effective rate on PSB income much higher than a normal small corporation. We do not quote a single combined percentage because it is a derived figure that depends on your situation, but the direction is clear: PSB income is taxed heavily. (Source: CRA: PSB obligations.)
What can a PSB still deduct?
Deductions are limited mainly to the salary and wages the corporation pays you, benefits or allowances it provides you, certain expenses of selling property or negotiating contracts, and legal expenses to collect amounts owing. The everyday deductions a normal business takes, like home office, software, and supplies, are generally not available to a PSB.
Can you reduce my PSB risk?
Often, yes, when we plan ahead. Changing how a contract is structured, how you operate day to day, and how you take on additional clients can all shift the factors the CRA weighs. We assess what is realistic for your situation and what is not. We will never advise you to misrepresent how you work, only to structure a genuine business genuinely.
The CRA is questioning my corporation. Can you help?
Yes. We review the position, prepare the response and documentation, and deal with the CRA on your behalf. If returns also need correcting, we handle that. If you have fallen behind on filings, our back taxes service works alongside this.
Know where you stand before the CRA decides
Tell us how you work and who you bill. We will assess your PSB risk, explain your options in plain language, and handle the return.
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