Entrepreneurship & Small Business

Incorporated Independent Contractor and PSB

  • Last Updated:
  • Jan 6th, 2017 12:26 am
Sr. Member
Feb 10, 2008
656 posts
309 upvotes
Toronto

Incorporated Independent Contractor and PSB

I may have a job opportunity that requires me to incorporate myself and work as an independent contractor. It's basically for one company, and despite what the recruiter is telling me, I have a feeling the CRA would deem it a Personal Service Business. I'll obviously get a ruling on this before tax time, however all the information I can find about PSB's is on how to avoid it...not how it works if you can't.

Assuming that the CRA deems me a PSB...is it just a matter of all the income having to be paid out to me as a salary and it gets taxed at my personal tax rate? If I understand correctly, being a PSB I can only really deduct salary and benefits (what they mean by benefits I'm not sure...).

If the contact is for $85/hr and I assume 4 weeks unpaid time per year (vacation/stats/etc.) that would be an annual revenue of about $163,000.

Using simple tax calculators online, it looks like with no RRSP's etc, this translates to a take home pay of about $110k? On top of that I'd have to consider accounting fees ($1500/year?), incorporation set up ($500?), WSIB ($5000?), CPP contributions ($5000?), plus whatever I need for medical expenses (since these are covered mostly by my current works benefits). Is there anything I'm missing? I'm just trying to estimate how it compares to my current salaried job.

Obviously being deemed NOT a PSB would be hugely beneficial, but I need to consider worst case.

Also, is it possible to pay my wife a salary from this income as well as she has no income so her personal tax rate would be less? I realize it would have to be for book keeping or something and would need to be reasonable based on hours spent, etc.

Thanks for any insight from someone in a similar position.
1 reply
Member
User avatar
Nov 16, 2015
312 posts
460 upvotes
Calgary
It's a common set up in many industries. The general rules of thumb around my parts is that you should see a minimum 30% increase in your wage if you switch from employee to subcontractor. Being a PSB eliminates essentially every primary financial benefit of having a corporation (but you retain the liability protection), so you would generally deduct what you can (little) and draw the rest out of the company.

The pay increase should cover the cost of your business related expenses, insurance and benefits, and still have you coming out on top. If it doesn't you're being taken for a ride, and I would avoid it if possible. Or work for other companies to lose the PSB classification.
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