Personal Finance

Trudeau going after Personal Services Corps disguised as small businesses

  • Last Updated:
  • Sep 25th, 2017 3:51 pm
[OP]
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Jun 27, 2015
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East York, ON

Trudeau going after Personal Services Corps disguised as small businesses

Hi all

These are quotes from Garth Turner blog a few days ago. I do not use the blog for investment advice but I use it to get fresh news and he seems to be pretty well connected and he is able to find in advance some of the thigs that are in the pipe for mortals like us
Apparently after getting the country even deeper in debt Trudeau's guys are now tightening the screws to squeeze more money from the working class
I have read the CRA papers on this and you are not a small business if either:
-you do not have 5 full time employees
or
-you have one or few constant clients and you do not have control over your tools and work hours. You also need to invoice regularly your clients

While you might not have 5 full time employees you might change your clients from time to time, you might not have permanent employment and you may have your own tools
Is the 5 employee cause mandatory?
What do you think of the above ?



In short, the perfect liberal budget. Now there’s more. The next one will turn on the spending tap further since job creation last year sucked, reduce corporate tax breaks and bring in the Doctor Tax, lowering the boom on people who get paid through professional corporations. In so doing, the contrast between us and the deplorables to the south will widen.
(The speculation is that the T2 gang will target people like docs, IT contractors, other medical professionals and self-employed entrepreneurs who spread tax by taking dividend income, employing family members, giving relatives non-voting shares and others things lefties don’t get and are therefore evil.)


And from the comments section

“I kind of feel like a crook doing this, but it’s all legal and all IT contractors do it. I welcome the closing of this loophole, if it really happens, as I feel that everyone should be paying their fair share of tax. Bring it on. “
Not all consultants to it and you are wrong that it’s all legal. Rules were put in place in 2011 regarding Personal Service Corps. I think the CRA waited a few years , so when they come, they’ll get their pound of flesh. As a business owner you should keep abreast of the laws of the land and not depend on an accountant.
Did you modifying how you run your business in 2012? If the CRA comes for an audit and your corporation is deemed a PSC, you’d have years of taxes to pay.
http://www.thebluntbeancounter.com/2012 ... rvice.html
https://www.thebalance.com/costs-of-dec ... rp-2948621
833 replies
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CuriousC wrote:
Jan 16th, 2017 10:18 am
I have read the CRA papers on this and you are not a small business if either:
-you do not have 5 full time employees
or
-you have one or few constant clients and you do not have control over your tools and work hours. You also need to invoice regularly your clients

While you might not have 5 full time employees you might change your clients from time to time, you might not have permanent employment and you may have your own tools
Is the 5 employee cause mandatory?
The bolded word above answers your question. Note that word is not 'and'.
Last edited by Conquistador on Jan 16th, 2017 10:55 am, edited 1 time in total.
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CuriousC wrote:
Jan 16th, 2017 10:18 am
While you might not have 5 full time employees you might change your clients from time to time, you might not have permanent employment and you may have your own tools
Is the 5 employee cause mandatory?
What do you think of the above ?
A professional corporation is basically a licenced job. We don't allow income splitting from any other type of "job", so why does a licenced professional like a doctor/dentist etc. who basically has 2-3 staff in the office get to income-split with his/her spouse and adult children to the tune of $40K/year tax-free (other than small business tax paid by the corp.) every year he/she practices? What does the spouse and adult children contribute to that "business"?

Ask yourself, why does the income of an incorporated doctor/lawyer/dentist pay only 14% fed+prov tax? There is a reason for that in other businesses. It's to enable the business to invest in capital and grow, like a Magna Inc. The intent is not so that the doctor/dentist can pay a nice tax-free $40K dividend to a spouse and adult children every year to pay for nice things like Harvard educations, BMWs and sunny vacations. The rest of us do that on the 60% of each dollar that is left over after various levels of taxation.
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This is interesting... I was under the impression this was legal. In fact, my wife's business was run as a sole proprietor but then her first accountant (a very incompetent one) said she was crazy to not incorporate and pushed her to do it as otherwise she was putting herself at risk. Then one of the first things her current accountant asked her is why the heck did she ever bother incorporating.
KitKat item collector- always looking for swag or branded items.
[OP]
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Jun 27, 2015
848 posts
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East York, ON
Conquistador wrote:
Jan 16th, 2017 10:55 am
The bolded word above answers your question. Note that word is not 'and'.
Not really, from the second link above

How to Avoid Being Classed as a Personal Services Corporation by the CRA
The obvious way to ensure that your small corporation is not deemed to be a personal services business at some point is to ensure that your corporation has more than five full-time employees throughout the year and/or that your corporation only provides its services to an associated corporation, as these are the two things that the Canada Revenue Agency lists as clear evidence that a small corporation isn't a personal services business. (See Ch. 4 of T4012 – T2 Corporation Income Tax Guide.)


Now what the heck is an associated corporation ?
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Feneant wrote:
Jan 16th, 2017 11:06 am
This is interesting... I was under the impression this was legal. In fact, my wife's business was run as a sole proprietor but then her first accountant (a very incompetent one) said she was crazy to not incorporate and pushed her to do it as otherwise she was putting herself at risk. Then one of the first things her current accountant asked her is why the heck did she ever bother incorporating.
I had an ex in-law tell me to incorporate my reptile breeding HOBBY. Like he knew what he was talking about.

So here's a question:

I make and from time to time sell the liquid for ecigs. It's just me doing it and I don't make more than $100 per month as it's not a business. Are these liberal morons going to tax me on it if I'm honest now or are they basically saying I'm not a small business? Would that change if I was making $1000/month?

I still wish people didn't rush and vote this idiot in.
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Feneant wrote:
Jan 16th, 2017 11:06 am
This is interesting... I was under the impression this was legal. In fact, my wife's business was run as a sole proprietor but then her first accountant (a very incompetent one) said she was crazy to not incorporate and pushed her to do it as otherwise she was putting herself at risk. Then one of the first things her current accountant asked her is why the heck did she ever bother incorporating.
Retained earnings. Pay out income as dividends to spouse at lower rates in case of no other income.
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XtremeModder wrote:
Jan 16th, 2017 11:50 am
I had an ex in-law tell me to incorporate my reptile breeding HOBBY. Like he knew what he was talking about.

So here's a question:

I make and from time to time sell the liquid for ecigs. It's just me doing it and I don't make more than $100 per month as it's not a business. Are these liberal morons going to tax me on it if I'm honest now or are they basically saying I'm not a small business? Would that change if I was making $1000/month?

I still wish people didn't rush and vote this idiot in.
Answer this question. Are you making a profit doing this or are you just the most altruistic person in the neighbourhood? If it's the former, it is a business and you should be reporting the income and associated expenses appropriately.
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XtremeModder wrote:
Jan 16th, 2017 11:50 am
I had an ex in-law tell me to incorporate my reptile breeding HOBBY. Like he knew what he was talking about.

So here's a question:

I make and from time to time sell the liquid for ecigs. It's just me doing it and I don't make more than $100 per month as it's not a business. Are these liberal morons going to tax me on it if I'm honest now or are they basically saying I'm not a small business? Would that change if I was making $1000/month?
The issue is that incorporated small business profits are only taxed 13.5% (fed+prov) in ON. The reason the tax is low is to enable the business build up capital and grow. If you're an incorporated professional with zero or few employees, you're obviously not going to grow very much (perhaps a dentist will buy a new chair etc.), plus you can pay your spouse and adult children dividends at very (or zero) rates of tax. As a result, you're just using the corporate "shell" to reduce taxes on your family income. You're not going to become the next Magna Inc.
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Conquistador wrote:
Jan 16th, 2017 11:56 am
Answer this question. Are you making a profit doing this or are you just the most altruistic person in the neighbourhood? If it's the former, it is a business and you should be reporting the income and associated expenses appropriately.
Profit is very low cause a lot of times I'll give away 15ml or 30 ml bottles and get opinions from people to see if they like it or if things need to be adjusted.
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damn i know a lot of people in the construction industry who are "small businesseS" and voted for the Liberal Party/Trudeau because of his promise to legalize weed and because they have this mistaken notion that the Liberal Party watches for the little guy.


This is the beginning of the end of the Canada that attracted milliions to immigrate here due to our government corruption and their thirst for debt.
[OP]
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Jun 27, 2015
848 posts
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East York, ON
JEsco1982 wrote:
Jan 16th, 2017 1:42 pm
damn i know a lot of people in the construction industry who are "small businesseS" and voted for the Liberal Party/Trudeau because of his promise to legalize weed and because they have this mistaken notion that the Liberal Party watches for the little guy.


This is the beginning of the end of the Canada that attracted milliions to immigrate here due to our government corruption and their thirst for debt.
Yeah but they are not going to go after those guys, they say that the IT contractors are the big cheese here.
I am curious about how much a one person small business in the construction industry makes to see if makes sense for CRA to go after them ...
If Trudeau is going to push this then it is going to be though because these people in the construction business are starting to be hit by the ongoing downturn in the Real Estate business country wide (I know that Toronto is not in this yet)

I guess Kevin Olearry is going to be our new Donald Trump soonn
Last edited by CuriousC on Jan 16th, 2017 1:48 pm, edited 1 time in total.
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Aug 17, 2008
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Quebec
JEsco1982 wrote:
Jan 16th, 2017 1:42 pm
damn i know a lot of people in the construction industry who are "small businesseS" and voted for the Liberal Party/Trudeau because of his promise to legalize weed and because they have this mistaken notion that the Liberal Party watches for the little guy.


This is the beginning of the end of the Canada that attracted milliions to immigrate here due to our government corruption and their thirst for debt.
Personal Services Corps and 'small businesses' is not the same thing. In the construction industry they have a lot of client so its not a problem.
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sr79 wrote:
Jan 16th, 2017 1:49 pm
Personal Services Corps and 'small businesses' is not the same thing. In the construction industry they have a lot of client so its not a problem.
I know what you mean but I'm talking about journeymen who have registered a HST number and work for one company but get paid straight cheques without deductions and at the end of the year their taxes are handled as if they were a small business with loads of write-offs and only pay 13% HST to the government.
Member
Aug 17, 2008
437 posts
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Feneant wrote:
Jan 16th, 2017 11:06 am
This is interesting... I was under the impression this was legal. In fact, my wife's business was run as a sole proprietor but then her first accountant (a very incompetent one) said she was crazy to not incorporate and pushed her to do it as otherwise she was putting herself at risk. Then one of the first things her current accountant asked her is why the heck did she ever bother incorporating.
Its not illegal to incorporate and run a Personnal service corp. What is illegal is claiming the small-business deduction and paying the small tax rate of 10.5%

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