Accounting for IT Consultants and Developers in BC
Contract developers, cloud architects, data specialists and freelance programmers often work through a small company for one or two clients at a time. That setup is efficient, but it carries a specific tax risk most contractors have never heard explained plainly.
EverStone CPA works with IT consultants and software developers across British Columbia, online, for fees agreed in writing up front.
Quick answer: Incorporating can let an IT consultant keep profit in the company at a low rate, but only if the company is not a personal services business. If you would be your client’s employee without the company, the low rate can be lost. We review your contracts, set up clean books and plan your pay so the structure holds up.
Who this page is for
Most of our tech clients are one-person companies billing hourly or daily rates. Others run a small consultancy with a few developers, or sell their own software alongside client work.
Some work through staffing agencies, some contract directly with BC companies, and some bill clients in the United States or overseas. Each arrangement changes the tax picture.
- Contract developers billing through an agency or direct to the client
- Cloud, security and network consultants on fixed-term engagements
- Freelance web and app developers with many small clients
- Small consultancies with two to ten developers
- Developers selling software, apps or subscriptions of their own
- Former employees going independent for the first time
Freelancing personally or through a company
You can start as a sole proprietor with no paperwork beyond a business name. Many tech contractors incorporate early because agencies and larger clients prefer to pay a company.
As a sole proprietor
Your contract income goes on a T2125 with your personal return. It is taxed at your personal rate in the year you earn it, and you pay both halves of CPP.
Through a corporation
The company signs the contracts and files a T2. Active business profit left inside is taxed at 11% combined on the first $500,000, until you take it out.
When it pays off
The benefit comes from leaving money in the company. If you spend everything you bill, the extra cost of a corporate return may not be worth it.
Run your numbers in the incorporation calculator, see when to incorporate and our incorporation advice.
Personal services business risk, in plain terms
The CRA asks one question about a one-person IT company: take the company away, and would you simply be your client’s employee? If the answer is yes, the company may be a personal services business, often called a PSB.
A PSB loses the small business rate. Its income is taxed at a rate above even the general corporate rate, and it can deduct very little beyond the salary it pays you. The CRA can reassess past years, with interest.
Signs that point towards a PSB
One client for years, set hours, the client’s laptop and email address, a manager who assigns your tasks, and a seat in their team meetings and org chart.
Signs that point away
Several clients, your own equipment, a fixed price for defined deliverables, freedom to decide how and when the work is done, and the right to send someone else.
What you can do
Read your contract against how the work really happens. Where risk is high, paying yourself most of the income as salary limits the damage. We look at both before your year-end.
Start with our PSB risk assessment and the guide to personal services business risk in Canada.
Salary, dividends and your contract income
How you pay yourself interacts with the PSB question, so the two are planned together.
Salary
Deductible to the company, builds RRSP room and CPP, and reported on a T4. For a contractor with PSB risk, salary is often the safer route for most of the income.
Dividends
Paid from after-tax profit and reported on a T5. Simple to pay, but no RRSP room. Dividends to a spouse who does not work in the company can be caught by the tax on split income.
Leaving money in
Retained profit can fund a gap between contracts or be invested. Money you borrow from the company and do not repay within a year after year-end is generally taxed as income.
Compare options in the salary vs dividends calculator and read about shareholder loans.
GST and PST for consultants and software sellers
IT consulting is generally subject to GST once you are registered. You must register once taxable sales pass $30,000 in four consecutive calendar quarters.
Registering early
Many contractors register from day one, because agencies expect a GST number and you can recover GST on your own equipment and software.
BC PST and software
BC PST is a separate registration. It can apply to software sold or licensed to BC customers, so developers selling products, not just services, should check whether to register.
Foreign clients
Services to clients outside Canada can be treated differently from local work. We look at each contract rather than guessing.
See our GST filing services, the guide to GST on exports and non-residents and the Quick Method calculator.
Payroll, subcontractors and WorkSafeBC
When a one-person company grows, it usually starts by subcontracting other developers before hiring anyone.
Your own salary
Even with no staff, paying yourself a salary means running payroll, remitting source deductions and filing a T4 by the end of February.
Subcontracted developers
Developers who invoice you, use their own tools and work for others are usually contractors. Keep the agreement and their GST number, and report payments on a T4A where required.
Employees and WorkSafeBC
Once you employ staff, register with WorkSafeBC and remit on schedule. Vacation pay starts at 4% and rises to 6% after five years.
Our payroll services cover owner-only payroll, and hiring your first employee walks through the setup.
Bookkeeping for invoices, platforms and foreign currency
A consultant’s books are small but easy to get wrong when payments arrive through agencies, platforms and US-dollar accounts.
Agency and direct invoices
Each invoice is recorded when issued, with GST shown separately. Agency timesheets are matched to invoices and deposits so missed hours are noticed.
Stripe and app stores
Software sales arrive net of platform fees and refunds. We record gross sales and the fees separately, so your margin is visible.
US-dollar accounts
Income in foreign currency is converted to Canadian dollars for tax. Exchange gains and losses on the account are tracked rather than ignored.
See our monthly bookkeeping services and the comparison of QuickBooks vs Xero.
Equipment, SR&ED and other tech issues
A few issues come up for developers that rarely affect other small businesses.
- Laptops, monitors and servers are capital assets written off through CCA; buy them in the company
- A room used regularly for client work can be claimed as a home office, by a different method once incorporated
- Building your own product may qualify for SR&ED, claimed on Form T661
- Personal instalments start when net tax owing exceeds $3,000 in the current year and either of the two previous years
- Contracts with US clients may involve withholding or forms; send them to us before signing
- Equity or options from a client company have their own tax treatment
- Gaps between contracts make a cash reserve inside the company useful
- Keep records six years, including timesheets and contracts
See the instalment calculator, CCA classes and the home office for incorporated owners. For design and engineering consultants, see our engineers and architects page.
Year-end checklist for an IT consulting company
Go through this before your fiscal year closes. The T2 is due six months after year-end, but tax owing is due sooner.
- Review each contract. Note the client, length, hours and whose equipment you used.
- Check PSB exposure. Flag any client where you work like an employee.
- Plan your pay. Decide salary and dividends before the year ends.
- Clear the shareholder loan. Repay or declare anything you took personally.
- List new equipment. Send invoices for hardware bought this year.
- Convert foreign income. Confirm the rates used on US-dollar invoices.
Our year-end paperwork checklist lists what to send, and the T2 service covers the return.
Services and fees for IT consultants
Tech contractors pay the firm’s standard published fees.
- Sole-proprietor return with a T2125: commonly $250–$450
- Monthly bookkeeping with GST and PST filing included: from $300 a month
- Corporate T2 and statements: quoted after a free consultation
- Owner payroll: quoted with the bookkeeping
- PSB review or a contract question: Advice Call at $200 + GST
- Personal T1 for a spouse or family: from $100
Fees are fixed in writing before work starts. See our pricing page.
Questions from IT consultants
Is my company a personal services business?+
My agency will only pay a corporation. Should I incorporate?+
Do I charge GST to a US client?+
Can I claim my laptop and home office?+
Do you work with consultants outside Vancouver?+
Written and reviewed by a Chartered Professional Accountant at EverStone CPA, an Abbotsford CPA firm working remotely with businesses across British Columbia. Updated . You can read client reviews before you get in touch. See our editorial standards.
Related reading
More for tech contractors and small software companies.
Send an enquiry
Tell us about your contracts: how many clients, how you are paid, and whether you are incorporated. A Chartered Professional Accountant replies within one business day with next steps and a written fee.