Job markets across the country are evolving and changing the way many people are doing their jobs, including service providers who are choosing to incorporate to do freelance work as individual contractors.
What is a personal service business
An individual who chooses to incorporate their business in order to provide services for one other company might be considered to be operating as a personal service business (PSB) by the Canada Revenue Agency (CRA). A PSB exists where the individual would be considered to be an employee of the hiring company if it were not for the existence of the corporation.
What we’re doing
The CRA is launching an educational outreach project to help industries that hire PSBs, understand and comply with the different tax obligations associated with their conditions of work.
The CRA’s officials will be contacting Canadian businesses as part of this project and asking them to provide documentation on the nature of their payer/payee relationship.
The outreach will inform both payers and payees of their tax obligations to enable them to make informed decisions on their working relationship.
What it means for you
Between June and December 2022, CRA officers will be reaching out to businesses from a sample of different industries that hire PSB or incorporated individuals operating as a PSB to help them determine whether or not they are fulfilling their tax obligations.
Participation to this educational outreach project is on a voluntary basis. Businesses that choose to participate in the project will benefit by gaining a better understanding of necessary requirements that need to be met in order to comply with the Income Tax Act (ITC), which will reduce the likelihood of errors in future submissions to the CRA.
No compliance action will result from the review, but businesses will be advised to ensure errors are corrected and that they comply with the ITC.
Why it matters
The contractual relationship you have as a payer or a payee affects your reporting requirement and could have legal or financial consequences for you and the business you’re operating. Determining the right status is essential when it comes to complying with your tax obligations.
The CRA is here to help
The CRA protects the fairness and integrity of Canada’s tax system for all Canadians with an approach that balances education and enforcement.
As part of our People First Philosophy to put Canadians at the center of our activities, the CRA has already started sharing educational materials on PSBs to inform both workers and payers of their tax obligations and help them comply.
Need More Information?
The CRA can help you understand your reporting obligations and how they can change depending on your worker-payer relationship. For more information, see Tax implications for a personal services business.
For information on reporting requirements for employees, self employed individuals, and personal services businesses, see our withholding and reporting requirements.
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