Personal Services Business Risk Review
Reviewed by EverStone CPA · July 2026
If you incorporated to contract to one company, there is a rule you were probably never told about, and it is the most expensive one that applies to a one-person corporation. This page explains what a review looks at, what it costs, and what can still be changed once you know the answer.
Quick answer: A personal services business is, in plain terms, an incorporated worker whom the CRA treats as an employee of the client. The consequence is severe: the corporation loses the small business deduction, pays tax at a punitive rate, and can deduct almost nothing beyond salary paid to the incorporated employee. It is decided on the facts of the working relationship, not on what your contract calls you. If you have one main client, no employees, and you work substantially the way that client’s staff work, this is worth an hour of a CPA’s time before it is worth a reassessment.
Why this rule catches good people
Nothing about becoming a personal services business requires anyone to have done anything wrong. The usual path is entirely ordinary: a company offers you a contract instead of a job, someone suggests incorporating, you incorporate, and you invoice one client for two years. Every step is normal, and the combination is exactly what the rule describes.
The reason it matters so much is the size of the consequence. An ordinary small corporation pays tax on active business income at the small business rate. A personal services business does not qualify for that rate at all, pays a higher federal rate on top, and loses almost every deduction an ordinary corporation takes for granted — home office, vehicle, supplies, professional fees. What is left is essentially salary paid to you and a very short list of employment-style expenses. The CRA sets out the factors it weighs, and they are about how you actually work rather than what your agreement is titled.
It is also assessed backwards. A review that concludes your corporation was a personal services business does not start from today; it applies to the years under review, with interest.
What the review actually examines
The question is whether, but for the corporation, you would reasonably be regarded as an employee of the client. The CRA’s own guidance on employee versus self-employed status sets out the tests, and the same factors decide this one.
| Factor | Points toward employment | Points toward business |
|---|---|---|
| Control | Client sets your hours, your methods and your priorities | You decide how and when the work gets done |
| Tools and equipment | Client supplies the laptop, software and workspace | You supply and maintain your own |
| Chance of profit, risk of loss | Paid for time, no exposure to loss | Fixed-price work, you carry overruns and rework |
| Substitution | Only you may do the work | You may send a qualified substitute |
| Integration | You appear on the client’s org chart, use their email, attend their staff meetings | You are visibly a supplier with other clients |
| Number of clients | One, for a sustained period | Several, or a genuine effort to have several |
No single row decides it. A corporation with five employees is outside the rule regardless of how the other rows read, and a genuinely independent consultant with one large client can be fine. What matters is the weight of the whole picture.
What you get
A written report, at a fixed fee agreed before anything starts. It sets out where each factor above lands for your actual arrangement, an honest read on the overall risk, and — the part that is worth the fee — which of those facts can still be changed, and how much difference each change would make. Some are structural and cannot move. Several are ordinary business decisions that nobody realised were also tax decisions.
If your position is clearly fine, the report says so in a paragraph and you have bought certainty rather than a project. That happens often enough to be worth stating.
Before you pay for anything
Run the free assessment first. The personal services business risk assessment takes about two minutes, uses the same factors as the table above, and gives you a band rather than a verdict. If it puts you in the low band, you very likely do not need this review, and we would rather tell you that with a free tool than with an invoice.
The review is for people the tool puts in the middle or high band, or for anyone whose arrangement changed part-way through a year — which is the case the tool handles worst and a human handles well.
If the answer is that you are exposed
Three things follow, in order. First, what can be changed going forward, since the facts are within your control more often than people expect. Second, whether the corporation still makes sense at all — sometimes the honest answer is that it does not, and the incorporation arithmetic is worth re-running. Third, the returns already filed, which is a conversation about correcting them deliberately rather than waiting to be found. A CRA review letter is a much better thing to receive with a plan already in place.
Contractors in this position are often behind on other things too, because the same year that produced the uncertainty produced the pile of paperwork. If that is you, catch-up bookkeeping and this review are usually quoted together, and the corporate return follows from both — the CRA’s T2 corporation income tax guide is the reference for what that return has to contain.
Related reading: employee or contractor if you are on the hiring side of this question, contractor accounting for the wider picture, and what everything costs.
Prepared and reviewed by a Chartered Professional Accountant at EverStone CPA, an Abbotsford CPA firm working with small businesses and incorporated owners across the Fraser Valley and Canada. About the firm → · Book a free consult →
Questions about PSB risk
Does having one client automatically make me a personal services business?+
My contract says I am an independent contractor. Does that settle it?+
Can I fix it by hiring someone?+
What does the review cost?+
What if I have already been filing as an ordinary corporation for years?+
Find out where you stand
A fixed-fee review, in writing, of whether the rule applies to you and what can still be changed. If your position is clearly fine, that is what the report will say.
