Personal services business pilot

Helping personal services businesses and the companies that hire them better understand their tax obligations

The Canada Revenue Agency (CRA) has been working to help Canadian corporations operating as a personal services business (PSB) and the companies that hire them better understand their tax obligations.

If you have incorporated your business to provide services, you might be considered to be operating a PSB. Generally speaking, a PSB exists where the individual performing the work would be considered to be an employee of the hiring company if it were not for the existence of the corporation. This structure is sometimes referred to as an incorporated employee. PSBs’ tax obligations are different than other corporations. For example, they are not eligible for certain deductions, such as the Small Business Deduction.

The PSB Pilot

The CRA launched its PSB pilot in 2022. The pilot is an opportunity for the CRA to provide outreach and education to corporations potentially hiring PSBs as well as those businesses operating as PSBs. The goal of the pilot is to help businesses better understand and comply with their tax obligations.

The PSB pilot is being undertaken using a multi-phased approach to allow for greater cooperation with industry representatives and the business community. This approach will allow PSBs (and the companies that hire them) sufficient time to understand their tax obligations before we move  forward with full compliance measures.

What is a personal services business (PSB)?

Generally speaking, the Income Tax Act (ITA) considers a PSB to exist where the individual would be considered to be an employee of the hiring clients  if it were not for the existence of the corporation.

Generally, when a corporation provides services to another corporation, their business relationship will either be one of consultant, an independent contractor or a PSB. Consultants and contractors will have a similar relationship with the hiring business as a self-employed person would on an individual level. A PSB, on the other hand, would be in a subordinate relationship with the hiring client, very similar to what an  employee would have with their employer.

A corporation may be operating a PSB if the following conditions are met:

  • You, as the incorporated employee performing services, are a specified shareholder of the corporation;
  • You would be considered an employee of the entity receiving the services if the corporation did not exist;
  • The corporation does not employ more than 5 full-time employees throughout the tax year; and
  • The amounts received by your corporation for services were not received from a related secondary corporation.
The small business deduction and the corporate tax rates

A PSB is not eligible for the general tax reduction or the small business deduction, which allows other corporations to reduce their corporate tax rates.

As a result, a PSB is subject to the full federal and provincial corporate tax rates on all taxable income, plus an additional 5% tax.

Correcting tax returns

If you believe you may be operating a PSB and would like to correct the tax return(s) you have previously filed, you can contact the CRA’s Voluntary Disclosure Program to determine if you meet the eligibility requirements and submit an application.

The Personal Services Business Initiative: Overview of Key Findings

Phase 1 - Identifying companies that hire PSBs


June to December 2022


CRA officials contacted more than 2,100 Canadian corporations and invited them to participate in an educational outreach activity. Employers (clients), who chose to participate submitted their books and records for review. CRA provided them with feedback and information related to their T4A and/or T5018 filing requirements and asked them to make any corrections to their tax returns.

From the data collected as part of Phase 1, initial findings determined two main taxpayer groups:

Key Findings

Phase 1 provided a limited view of PSB activities. Based on the participation level, we cannot apply preliminary findings to all industries, however, some trends can be highlighted: 

Phase 2 - Identifying potential PSBs


October 2023 to June 2024

Objective & Scope

Phase 3 - Assisted compliance for PSBs


TBD  - to be confirmed based on the outcomes of prior phases.

Objective & Scope


For more information on tax obligations for PSBs, please visit:

We welcome your feedback

We are working to make it easier for PSBs to comply with their tax obligations.

Please email us at if you have any feedback regarding the pilot.

If you have specific enquiries related to your account, please contact the Canada Revenue Agency.

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