Personal services business

A buyer of a one-person consulting corporation meets this term when the corporation’s main client treats the owner like staff. The Income Tax Act defines a personal services business carried on by a corporation as a business of providing services where conditions about the incorporated employee and a specified shareholder are met, subject to exceptions in the definition.

What the CRA says

The CRA explains that a personal services business generally exists where the individual who is a specified shareholder would reasonably be considered an employee of the payer if it were not for the corporation. It says that income is not eligible for the general tax reduction or the small business deduction.

What to check or ask

• Who directs the work and sets the hours
• Whether one client supplies most of the revenue
• How the corporation has filed its returns
• Whether an exception in the definition applies: the number of full-time employees in the business throughout the year, or payment for the services by an associated corporation

Related reading: liability for misclassified workers and employee misclassification.