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  • May 19th, 2018 6:52 pm
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[OP]
Deal Addict
Sep 23, 2007
4446 posts
791 upvotes

Would this be considered a PSB?

I own a business with shareholdings in multiple corporations. I also may secure a contract agreement from my former employer to perform certain tasks. I intend to form a corporation and hire 2 staff if the deal with my former employer pans out. My former employer can sign the service contract with this new corporation. About 1.5FTE to manage the contract with my former employer. And 0.5 FTE to help with some bookkeeping/paper work for my business corporations. My business corporations and my former employer will pay this new corporation service fees.

Question: Would my new corporation be considered A PSB? I won't necessarily perform a lot of work on this new corporation myself. More like overseeing the 2 staff to provide said services above. I've developed a system and procedures for the workload and just need staff to do the work. I don't have a formal office. My staff can work from home and I can communicate via skype with occasional meetings.
22 replies
Deal Addict
Jul 3, 2006
1800 posts
348 upvotes
BananaHunter wrote:
May 6th, 2018 6:50 pm
I own a business with shareholdings in multiple corporations. I also may secure a contract agreement from my former employer to perform certain tasks. I intend to form a corporation and hire 2 staff if the deal with my former employer pans out. My former employer can sign the service contract with this new corporation. About 1.5FTE to manage the contract with my former employer. And 0.5 FTE to help with some bookkeeping/paper work for my business corporations. My business corporations and my former employer will pay this new corporation service fees.

Question: Would my new corporation be considered A PSB? I won't necessarily perform a lot of work on this new corporation myself. More like overseeing the 2 staff to provide said services above. I've developed a system and procedures for the workload and just need staff to do the work. I don't have a formal office. My staff can work from home and I can communicate via skype with occasional meetings.
Should be fine
Member
Jun 25, 2011
333 posts
111 upvotes
Alberta
Sounds more like a PSB. The classification will be based on the facts rather than legal form of your corporation. You need to have atleast 5 full time employee in a year but you got 2 part timers. You will be working for only one company who happen to be your ex- employer. If you get audited, the onus is going to fall on you to prove that you are not PSB. Based on what you said, it is more likely PSB.
Deal Addict
Feb 5, 2009
2654 posts
770 upvotes
Newmarket
albertaguy wrote:
May 7th, 2018 7:26 pm
You need to have atleast 5 full time employee in a year but you got 2 part timers. Y
I have never heard of 5 employee requirement, do you have a cra link that states so?
IMO OP is not a PSB, the only factors that would lean towards PSB is the fact that the corporation will have only one client and was created for the specific purpose of servicing one client, the main factors against PSB is that OP will not be doing the work himself, will hire his own employees, looks like OP and not the client is controlling the work process, OP, not the client is providing the equipment.
Not a clear cut, but IMO this is not PSB.
Member
Jun 25, 2011
333 posts
111 upvotes
Alberta
It looks more like PSB unless OP takes some more steps to be not classified as PSB.
He needs 5 full time employee in a year and multiple clients and some inherent risk in the earnings.
://www.taxtips.ca/glossary/personalservicesbusiness.htm

Paragraph 125(7)(c) of ITA ask for minimum 5 full time employees
[OP]
Deal Addict
Sep 23, 2007
4446 posts
791 upvotes
Hmmm....Maybe I wasn't clear. Let me elaborate.

Income stream 1:
-Former employer. I'd hire 1.5FTE to manage this work

Income stream 2:
-My other business corporations. Instead of hiring external accountants to do bookkeeping, I can use the same 2 staff to do the bookkeeping and some other paper work and tracking. I estimate 0.5 FTE for this. I have 4 corporations where I have shareholdings (excluding this new one that I might form) and each corporation has different group of shareholders. Each of these 4 corporations will pay a monthly service fee for performance of said work. I am not a relative or family of these other shareholders and if they are paying for services, they'd expect it to be done right.

So it's not 1 single client and I never said anything about part timers. I clearly said "FTE". And the way I read the 5 employee thing, it's not the only determinant? I read the link and a project management corporation was ruled NOT a PSB despite being a team of man, his wife and daughter. So I don't think the 5 employee thing is a hard rule.

If I'm lucky I'll have a 3rd income stream down the line...but lets worry about the facts above first.
[OP]
Deal Addict
Sep 23, 2007
4446 posts
791 upvotes
What if this new corporation also does the books for some companies that I have no shareholdings in? My business partners have some corporations unrelated to my business.

What do you mean by one client? I'm not the sole shareholder of any of these corporations. Technically my corporation is working for me and also my partners. I don't have majority control in some of these corporations.

No it's not easy. I've created a system for my former employer. They previously paid big $$$ to another company to do the work. I've built a better system, do it faster too. I highly doubt they can secure another employee that can do the same work. I read the word "inherent risk". Yes I have risk. I intend to charge a "market rate" which is significantly higher than my previous salary. They are welcome to try to find an employee to replicate what I did, or go back to the other company if they don't like my work. Or the work of my employees I should say.

Really...the essence of the story is...I'm actually employing staff to do the work based on a set of systems/procedures I developed. I'm overseeing the work and not planning to do much myself. The work doesn't just serve me or a single entity and all corporations I serve have multiple shareholders. I just want to clarify this because multiple posters are saying "one client" and I'm not grasping how I only have 1 client.
[OP]
Deal Addict
Sep 23, 2007
4446 posts
791 upvotes
The books are done for corporations with multiple shareholders. Therefore it's not just me. And I don't have majority shares in some of them. There's no "just me".
[OP]
Deal Addict
Sep 23, 2007
4446 posts
791 upvotes
I did not arrange the corporations in this fashion to avoid being a PSB. I started the business as a single corporation many years ago. It evolved to a multiple corporation set up with multiple partners. The thing with my former employer is also a recent development. Even if it's PSB, I would go through with a service agreement with my former employer because the primary expenses would just be salaries and I'm not interested in working with that company again.

The whole point of setting up this corporation is to manage workload more effectively. I'm a CPA and I can manage the staff more effectively for the bookkeeping/business aspects. And the same staff with number skills can also help with the former employer portion. So there's synergy in the workload to combine these 2 income streams.

Frankly I'll just go through with this set up. I'm in negotiating with my former employer now and hope a deal pans out within a month or so. Whether it's a PSB or not, I need someone to do this type of work. Even if I lose some tax benefits I stand to gain just by having this service agreement.
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User avatar
Mar 23, 2008
7970 posts
4716 upvotes
Edmonton
Easiest/best thing is to talk to an actual accountant and get clarification on your particular situation. My initial thought is that you would not be a PSB, but I'm no expert.

C
Member
Jun 25, 2011
333 posts
111 upvotes
Alberta
PSB is a gray area and you have to careful in the classification as in the end it will not be what you think but it will be what CRA thinks and if you take it to next level then what the court will think.

You might be doing some other bookkeeping works for some of your other related or associated corps but if the majority of your income is going to be from your your one ex-employer then work for others will be just a window dressing. If you have more than 10% share in other corporations you work for then you will be specified shareholder (more support for PSB). Most important criteria for PSB, But for the existence of the corporation, the incorporated employee might reasonably be regarded as an officer or employee of the entity for which the services are provided. The four common law test to determine the PSB are:

The degree of control exercised by the hirer over the duties you perform;
The degree to which the work you provide is integrated with the business of the hirer;
Whether or not the hirer provides the tools to be used to perform the services; and
Whether you, as the service provider, have a chance of profit, as well as the risk of loss.

You know all the facts, so just work around those and see if reasonable person can look at those questions and see your situations and comes to the conclusion that you are not PSB. Technically if you don't incorporate then you can work full time for your ex-employer and part-time for your other corps. Your setup seem no different than any other employee. But if you hire 5 or more full time employees then you have better chance to not classified as PSB. I don't think you are outsourcing your bookkeeping work. If you do then make sure you are withholding taxes on those employees .

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