Teplov CPA Subscribe for tax updates Contact
PSB risk review

A corporation does not automatically protect an IT contractor from PSB risk

CRA looks at the real working arrangement: client concentration, control, tools, substitution rights, financial risk, and whether the contractor is independent in substance. A review is most useful before a long single-client contract renews.

Start a PSB Review What the review covers

When a review is worth doing

These facts do not automatically create a PSB. They are the patterns that deserve careful review before the corporation relies on small business deduction assumptions.

  • Your corporation bills one main client or one agency for most of the year
  • The contract has renewed beyond twelve months with the same end client
  • The end client controls your hours, location, tasks, or approval process
  • You use the client equipment, client credentials, or client internal systems as your main work environment
  • You cannot subcontract or substitute another qualified worker without approval
  • Your corporation has little financial risk beyond your own time
  • You are incorporated but the work looks close to employee work in practice

What the review covers

The goal is not a generic yes/no label. The goal is a documented view of the facts, the weak spots, and the support that should exist if CRA asks questions.

  1. 01

    Contract and client map

    Identify the legal payer, staffing agency, end client, renewal history, payment flow, and whether the corporation depends on one relationship.

  2. 02

    Working-arrangement facts

    Review control, tools, substitution rights, financial risk, integration with the client team, and how the work is actually performed.

  3. 03

    Documentation plan

    Separate facts that support independence from facts that create exposure, then document what should be retained before a CRA question arrives.

What a PSB determination means in practice

When CRA classifies a corporation as a personal services business, the small business deduction is eliminated and the federal corporate rate rises to the general rate. A 5 percent PSB surtax applies on top. The only deductible expenses are salary paid to the incorporated employee and a limited set of employment-type costs. All other business deductions are disallowed.

The review does not produce a CRA ruling. It produces a documented view of the facts, the risk exposure, and what should be retained before CRA asks questions. The goal is to understand the file clearly before a contract renewal, a large dividend, or year-end planning.

Related guides

Detailed breakdowns of the PSB risk factors, corporate tax consequences, and decisions that follow a review.

Common questions

Q.01 Does having a corporation protect me from PSB classification?
No. The PSB rules apply to corporations, not just sole proprietors. If your corporation provides services through a staffing agency or directly to a client and the facts suggest an employee-like relationship, CRA can classify the corporation as a personal services business. The working arrangement is what matters, not the legal structure.
Q.02 What does a PSB determination actually cost?
PSB designation removes the small business deduction, raising the federal corporate rate to roughly the general rate. A 5 percent PSB surtax applies on top. Deductible expenses are severely restricted: only salary paid to the incorporated employee and certain employment-type costs. All other business deductions are disallowed.
Q.03 Who is most at risk?
Incorporated contractors on long-tenure, single-client arrangements, particularly federal government contracts in Ottawa placed through staffing agencies. The combination of agency intermediary, single department, individual security clearance, and client-controlled environment stacks several PSB indicators at once.
Q.04 Can the review be done before renewal?
Yes, and that is the best time. A review before contract renewal gives you time to document independence facts, consider contract terms, and make any planning decisions before committing to another year. Doing the review after a CRA query is less useful.
PSB review

Need a PSB fact review?

Send the contract pattern, client count, renewal history, and whether you work through an agency. Teplov CPA responds within one business day.

Start the Review