Staying Onside – Incorporated Contractors & Taxes (Part II)

In Are you walking into a tax disaster – Incorporated contractors & taxes, we discussed when an incorporated contractor could be considered to be carrying on a personal services business ("PSB") and the adverse tax consequences that follow. To recap, a PSB is a business of providing services where an individual who performs services on behalf of the corporation (the "incorporated employee") or a related person is a specified shareholder, and the incorporated employee would reasonably be regarded as an officer or employee of the hirer but for the existence of the corporation. The law provides few exceptions such as where the corporation employs more than five full-time employees. A PSB corporation is subject to strict limitations on deductions and pays tax at a punitively high corporate rate.