Quick answer: Three questions decide whether a professional’s corporation in Langley is worth having: whether the CRA could treat it as a personal services business (which removes the small business deduction and most expenses), how the home office is run through the corporation, and how the owner is paid. All three are answered by how the business is actually structured — number of clients, who controls the work, what the contracts say — not by the corporation’s existence.
The personal services business test
If, without the corporation, you would reasonably be regarded as an employee of your client, the corporation can be a personal services business. The consequences are severe: the small business deduction is lost, most deductions other than salary are denied, and an additional tax applies. The factors are the same ones that separate an employee from a contractor — control over how and when the work is done, ownership of tools, chance of profit and risk of loss, and whether you are integrated into the client’s organization.
A Langley IT contractor billing one client full-time on that client’s equipment is the profile most at risk; the PSB risk assessmentA free tool that walks the factors CRA weighs for an incorporated contractor walks through the conditions.
What reduces the risk
More than one client, contracts that give you genuine control over method and hours, your own equipment and insurance, the ability to substitute or subcontract, and marketing to the wider market. None of these is a formality: the CRA looks at the working relationship, not the wording. Where the risk is real, the structure has to change or the corporation has to be run knowing that the deduction may not be available.
The home office through the corporation
A Langley consultant working from a home in Walnut Grove or Brookswood can have the corporation bear the business portion of home costs, but the mechanics matter: a reasonable allocation, a written arrangement, and consistency year to year. The corporation paying rent to the shareholder is one method; reimbursing costs is another; each has a different result on the personal return. See the home office through a corporation guide.
Salary, dividends and the professional’s year
A professional corporation with steady income usually decides pay once a year and adjusts at year end. Salary creates RRSP room and CPP; dividends do not. The right mix depends on personal income needs, the corporation’s tax rate and whether the small business deduction is available at all — which is why the PSB question comes first. Our salary vs dividends calculator models the choice; the professional corporation page covers the regulator-specific share rules for health and legal professionals.
Related
Accountant in Langley BC · Professional corporations in Langley · Incorporated professionals · Personal services business risk
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Sources: CRA — T4012 T2 Guide (personal services business) · CRA — Employee or self-employed?. General information, not advice.
Frequently asked questions about incorporated professionals in Langley
I have one client. Is my corporation automatically a PSB?+
Does incorporating in Langley versus Surrey change anything?+
Can the corporation pay my home internet and phone?+
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