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Incorporated contractor

Corporate tax and bookkeeping for incorporated Canadian IT contractors

Most incorporated IT contractors in Canada are paid by their staffing agency directly into the corporate account by EFT, weekly, with HST included. HST remittance, owner compensation, corporate tax, and T2 filing all fall on the corporation. Incorporation creates tax deferral and planning flexibility. It also creates more ways for the file to go wrong.

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Common situations

These are the files where a corporate structure needs more than annual tax filing. Teplov CPA works with contractors placed through Procom, SI Systems, Hays, TEKsystems, Randstad, and other IT staffing agencies.

  • Agency rate is gross corporate revenue, not take-home pay. The weekly EFT, plus HST, is what the corporation receives. Owner take-home requires a separate salary or dividend decision.
  • Incorporated after contract income increased, but no salary or dividend plan was created
  • Most revenue comes from one agency client and PSB risk has not been reviewed before the contract renewed
  • Corporate bank and credit card accounts include personal purchases or unclear transfers
  • GST/HST filings do not reconcile cleanly to invoices and bookkeeping records
  • Retained earnings in the corporation with no year-end tax plan
  • T2 corporate filing and personal T1 return need to be coordinated

What Teplov CPA handles

Three areas of recurring work for incorporated contractors, handled together so the bookkeeping, filings, and planning decisions stay coordinated.

01 · Books

Corporate bookkeeping

  • Monthly reconciliations for corporate bank and credit card accounts
  • GST/HST tracking and input tax credit review
  • Shareholder loan account monitoring
  • Software, equipment, home office, and professional cost categorization
  • Year-end working papers ready for T2 preparation
02 · Tax

T2 and related filings

  • T2 corporate income tax return and CO-17 (Quebec) where applicable
  • GST/HST and QST return preparation and filing
  • T4 or dividend reporting coordination where applicable
  • Personal T1 coordination for owner compensation
  • CRA correspondence support
03 · Planning

Planning and risk review

  • Salary versus dividend planning
  • Personal services business risk fact review
  • PSB defense documentation for long-tenure single-client contracts
  • Corporate fiscal year election for newly incorporated contractors
  • Shareholder loan and corporate leakage review
  • Retained earnings and tax deferral planning
  • Incorporation timing analysis for contractors considering the move

The PSB issue

Personal services business risk is not solved by having a corporation, and it is not disclosed by the staffing agency. CRA looks through the agency relationship and examines the actual working arrangement at the end-client level. A contractor with one client, client-controlled hours, client equipment, and no real ability to substitute another worker may need review before relying on small business deduction assumptions.

The highest-risk profile in Canada is an incorporated contractor on a long-tenure federal government contract in Ottawa, placed through a staffing agency, working inside one department. If that describes your situation, a PSB review is worth doing before the next renewal. The review covers contract terms, working arrangement facts, and what documentation would support independence if CRA asked questions.

Related guides

Detailed breakdowns of the decisions that matter most for incorporated IT contractors.

Common questions

Q.01 What is the main issue for incorporated IT contractors?
The corporation adds a second filing layer. The T2 return, owner compensation, shareholder loan account, GST/HST, and personal T1 return all need to agree with each other. When they do not, the gaps tend to surface at the worst time.
Q.02 Which accounting software do you use for incorporated contractors?
QuickBooks Online. We set up the chart of accounts around corporate income, GST/HST, shareholder loans, owner draws, and software costs. If you are already on QBO, we connect to your existing file.
Q.03 Can you review whether my corporation has PSB risk?
Yes. The review focuses on facts: client concentration, control over work, tools and equipment, substitution rights, financial risk, and how independent the working arrangement is in substance.
Q.04 Do you handle salary and dividends?
Yes. Salary and dividend planning is reviewed in context: cash needs, RRSP room, CPP, corporate profit, retained earnings, and the paperwork needed to support the chosen approach.
Q.05 I work through a staffing agency. How does that affect my filing?
When a staffing agency engages your corporation, the agency pays your corporation directly by EFT. Your corporation invoices the agency and charges HST. The agency remits the gross amount plus HST to your corporate account. No T4 or T4A is typically issued by the agency, though the specific reporting treatment for your arrangement is confirmed at onboarding. Your corporation then handles HST remittance, owner compensation decisions, and the T2 filing.
Q.06 How do I know if I need a PSB review?
The clearest indicators: your corporation bills primarily one agency client, the client directs when and where you work, the client provides your workspace or primary tools, and your contract has been running for more than one year. Federal government contracts in Ottawa placed through staffing agencies are the highest-risk profile. A review is worth doing before the next renewal, not after.
Q.07 Should my corporate fiscal year end on December 31?
Not necessarily. December 31 is the default but not always optimal for a new corporation. A strategic first-year fiscal year election can defer tax and improve early cash flow. This decision is best made before the first fiscal year closes, and it depends on when you incorporated, your expected income, and planned owner compensation.
Corporate file

Need a cleaner corporate file?

Describe your corporation, clients, bookkeeping setup, GST/HST status, and any salary, dividend, or PSB concerns. Teplov CPA responds within one business day.

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