At the end of last year we sent you a notice regarding the nature of business for consulting service. We are not sure whether you pay attention to it or not. Now we have new released case result from CRA. We would like to share with you. From the case report, CRA determines consulting business as Personal Service if you meet following conditions (IT73R6):
1. an individual who performs the services provided to another person or partnership (the entity) on behalf of the corporation (referred to as an “incorporated employee”) would, if it were not for the existence of the corporation, reasonably be regarded as an officer or employee of the entity to which the services were provided. (below are examples of criteria)
* only source of income during the year;
* under client’s supervision;
* client provides equipment;
* follow client’s work schedule and deadline
1. the corporation employs in the business in the year fewer than six full-time employees including incorporated employees and other employees, and
2. the incorporated employee or any person related to the incorporated employee is a “specified shareholder” of the corporation. and
3. the fee for the services is not received or receivable by the corporation from a corporation with which it was associated in the year. and
If CRA determines your business is personal service instead of small business, corporation income tax rate will be 33%. Your business claimable expenses will be very limited. Any disallowed expenses by CRA, which had been reimbursed from company to the owner, will be accounted as your personal taxable benefit.
So we encourage you to pay yourself salary from now on in order to avoid this issue.
Feel free to contact us if you have question.
Helen Ge CGA