ARTICLE · 25 JUNE 2012

Incorporated Employees Face New Obstacles

Lavery

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Some individuals choose to offer their services via a corporation rather than as an employee in order to benefit from the low tax rates enjoyed by corporations.

CanadaTax

Carolyne Corbeil

Some individuals choose to offer their services via a corporation rather than as an employee in order to benefit from the low tax rates enjoyed by corporations. To discourage individuals from doing this, the Minister of National Revenue (the "Minister") introduced the concept of "Personal Services Business" ("PSB") in order to place restrictions on certain expense deductions and disallow the "Small Business Deduction" ("SBD"), which allows businesses to be taxed at a reduced corporate rate. Until recently, despite these restrictions, PSBs still offered certain fiscal advantages. However, on October 31, 2011, the Minister introduced a new deterrent, effectively increasing the corporate tax rate for PSBs and thereby considerably reducing the fiscal advantages of operating a PSB.

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