Consultants & Professional Services
Independent consultants incorporate expecting the tax advantages of a small business — and most of the time, that’s exactly what they get. But there’s a rule almost nobody explains clearly up front: if your corporation looks, in substance, like you’re just an employee of one client wearing a different label, CRA can take those advantages away entirely.
The Problems We Solve
- Personal Services Business (PSB) risk. This is the single most under-communicated risk in this industry. If CRA deems you an “incorporated employee” — one client, set hours, their tools, ongoing integration into their team — your corporation loses the Small Business Deduction and most expense deductions, and gets taxed at the full corporate rate on what’s left. Many single-client consultants are exposed to this without knowing it.
- T4A reconciliation. Client-issued T4A slips need to match your own revenue recognition, and discrepancies between the two are a common flag that draws unwanted attention.
- Cross-border HST treatment. Consulting services provided to non-resident clients can, in some circumstances, be zero-rated for HST purposes — a treatment that’s frequently missed entirely or applied incorrectly in either direction.
- Retainer vs. project-based revenue recognition. A retainer collected upfront for work spread across several months isn’t automatically all current-year income — it needs to be recognized as the work is actually performed.
- Business-use-of-home apportionment. When your “office” is also your living space, the apportionment needs to be calculated defensibly and consistently, not estimated loosely.
Why Consultants Are Taxed Differently
PSB status hinges on control, tools, exclusivity, and how integrated you are into a client’s operations — not simply on whether you have a corporation. This makes the risk genuinely invisible to a lot of consultants: the corporation itself looks completely normal, but the underlying working relationship is what determines whether CRA respects it for tax purposes.
Our Expertise
We work with owner-managed corporations across a range of service-based industries, reviewing exactly the kind of client-relationship factors that determine PSB exposure, and structuring engagement documentation and expense reporting to reflect a genuine independent business relationship rather than an employment relationship in disguise.
Common Questions
I only have one client right now — am I automatically a Personal Services Business? Not automatically, but it’s one of several factors CRA weighs. Control over your hours, use of your own tools and equipment, and the ability to take on other clients all matter, even with a single active engagement.
How should I recognize a 6-month retainer paid upfront? Generally spread across the period the work is actually performed, not recognized entirely in the month you received the payment.
Is consulting income to a US client HST-exempt? It can be zero-rated under certain conditions for services to non-residents, but the rules depend on where the service is actually consumed and the nature of the work — this needs a specific review rather than a blanket assumption.
Ready When You Are
Many incorporated consultants are exposed to Personal Services Business risk without realizing it — until it costs them their small business deduction. If you’re not sure where your arrangement stands, that’s worth a conversation before your next filing, not after a reassessment.
Why choose Syed CPA
Contact Info
- +1 (647) 977 8977
- admin@syedcpa.ca
