The issue of Personal Services Businesses/Personal Services Corporations, or PSBs/PSCs, are a source of much hype, and much confusion in our industry. Before offering up our thoughts and opinions, here are a few facts that are important:
This is not new. The federal government amended the Income Tax Act well over 30 years ago to essentially prevent people from leaving their job with their employer, only to return immediately thereafter as a contractor so as to realize more optimal tax benefits.
The generally recognized precedent-setting case involved a high-profile sports figure named Ralph Sazio, a coach with the Hamilton Tiger Cats.
In the Fall of 2013 changes were made to the tax rates applying to PSBs that make it quite unappealing for anyone to operate under this designation.
Almost four years ago now, the CRA assessed over 300 Independent Businesses and found in the range of 115 of these to be PSBs. Over 60 of those were in the IT space alone. What is the industry doing about this?
The IT staffing association in Canada, the NACCB, became engaged. I, as the current Chair of the Board of NACCB, and Ian MacMillan, a founding member, are leading this file.
The general staffing association, ACSESS, soon joined in. Mary McIninch from ACSESS, arguably one of Canada’s foremost authorities on Government issues relating to staffing, has also engaged in this issue.
We jointly selected one Independent Contractor case and provided financial support to the Ottawa law firm that was arguing on behalf of the Independent Contractor.
We have also been working with the CRA to endeavour to bring greater clarity to the issue, largely by helping them understand that certain criteria no longer applies in today’s business climate.
Here is the current status:
With regards to the case we were pursuing, the CRA issued a Consent Judgment. What that means is this particular contractor won as the CRA overturned its original decision. Great outcome for the Independent Contractor; however, it did not provide us with any legal precedent setting. We are awaiting decisions on approximately a dozen other cases and will decide upon the next course of action when those decisions come in.
After some setbacks with respect to people’s availability, we are back on the CRA agenda and have a meeting on June 11th, at which time we’ll be able to gauge their ability to bring clarity to this issue. This discussion will focus on various criteria used by the CRA to determine a PBS (e.g. who controls the work, who provides the tool, opportunity for profit/risk of loss, etc.)
The most important thing you can do is to think and operate like a business. Next week we will give you some tips…stay tuned!