Accountant for incorporated Ottawa consultants

Why the Ottawa contract market concentrates risk

Long engagements with a single department or prime contractor are normal here, and they are also the fact pattern that raises personal services business risk. The test asks whether, without the corporation, you would reasonably be regarded as an employee of that client — judged on control, tools and workspace, chance of profit or loss, ability to substitute, and how integrated you are into their organisation.

Two further conditions have to hold: you (or someone related) must be a specified shareholder holding at least 10% of the corporation, and the corporation must employ no more than five full-time employees through the year. A one-person Ottawa consultancy meets both without trying. Our PSB guide covers the detail.

What a PSB determination actually costs

It is not a marginal adjustment. The corporation loses access to the small business deduction — the low rate you incorporated for — and loses the ability to deduct most ordinary business expenses, with deductions restricted largely to salary paid to you as the incorporated employee. An additional federal tax applies on that income on top of the general rate. Applied across several reviewed years, the outcome is usually worse than having been an employee throughout.

Contract terms are evidence, and most are written by the client

The engagement letter you sign was almost certainly drafted for the client’s convenience, not your tax position. Clauses on exclusivity, fixed hours, on-site presence and equipment supplied by the client all count against you if the arrangement is ever examined. Serving more than one client, using your own equipment, working to deliverables rather than assigned hours and carrying your own insurance all count in your favour. We read the contracts and tell you honestly where you sit — including when the answer is that restructuring is the right call.

Expenses, HST and the ordinary compliance year

Where PSB risk is not live, an Ottawa consultancy is a straightforward file: HST on fees, a home office where that is genuinely the base of operations, vehicle costs where there is real business travel, and a salary-and-dividend split recalculated annually rather than set once and forgotten. Where risk is live, the calculation changes, because salary to the incorporated employee is one of the few amounts that stays deductible.

If you think you may already be exposed

The worst version of a personal services business problem is the one discovered during a review of prior years, because by then the assessment covers every year in question and interest has been running throughout. If you read the test above and recognised your own arrangement, the useful thing is to establish the position now rather than wait to be asked.

There are usually three routes, and which fits depends on how clear-cut the facts are. The first is to change the substance of the relationship going forward — adding clients, using your own equipment, moving to deliverable-based terms — so that future years look materially different. The second is to accept the treatment and plan around it, because salary paid to the incorporated employee remains deductible even where the rules apply, which changes the whole salary-and-dividend calculation. The third, where past filings were wrong rather than merely arguable, is a correction through the CRA’s Voluntary Disclosures Program, which exists precisely for this and is far better used before contact than after.

We will tell you honestly which of the three your situation calls for, including when the answer is that the exposure is real and worth addressing rather than arguing.

What EverStone handles for you

One CPA, one fixed fee agreed up front:

• T2 corporate return and year-end financial statements
• PSB exposure reviewed against your actual contracts
• HST registration and filings
• Home office and vehicle claims supported properly
• Salary-versus-dividend mix recalculated each year
• Your personal T1 coordinated with the corporate return
• CRA correspondence handled for you

Fixed fees, fully online

EverStone is an Abbotsford CPA firm working with Ottawa clients entirely online. We are three hours behind you, which in practice means anything sent at the end of your day is usually answered before you start the next. The fee is fixed and agreed before work begins — which is what makes a call about a new contract worth making. See what it costs.