Understand your obligations as a corporation carrying on a PSB or the payer of a PSB
If you are not sure if the worker is performing services through a corporation carrying on a PSB, continue to: Determine if the worker’s corporation is carrying on a PSB
Understanding the tax obligations based on the individual:
Corporation carrying on a PSB
Many corporations who are carrying on a PSB are unaware of their distinct tax obligations and may be incorrectly filing their taxes.
Understanding the corporation carrying on a PSB's tax obligations:
- Income tax obligations
- GST/HST obligations
- Payroll obligations for workers of the PSB
- Revenu Québec obligations
- Other tax obligations
Income tax obligations
Corporations, including those carrying on a PSB who are residents of Canada are required to report their worldwide income from all sources.
Non-resident corporations
Non-resident corporations, including those carrying on a PSB are subject to Canadian income tax on most Canadian-sourced income paid or credited to them during the year unless all or part of that income is exempt under a tax treaty.
Learn more: Income tax information for non-resident corporations
Receiving the slip from the payer
Generally, the payer must provide the corporation with a T4A slip which includes any fees or other amounts paid for services. Depending on the situation, the payer may provide the corporation with a T4A-NR, T5018 or T1204 instead.
Learn more: Payments of fees for services
What if the corporation does not expect to get the slip
Learn more about the options if the corporation does not expect to get the slip: Get a copy of a slip
What are the limitations for a PSB for tax deductions and expense claims
Income earned by a PSB is:
- Not eligible for the general tax rate reduction or the small business deduction. These allow certain other corporations to reduce their corporate tax rates.
- Subject to the full federal and provincial corporate tax rates, plus an additional 5% tax that is specifically for a PSB.
- Limited in the expenses it may deduct.
T2 return (corporate income)
When filing the T2 return for income earned by the business that is carrying on a PSB, the corporation must:
- Only deduct the following eligible expenses on Schedule 125, Income Statement Information:
- Salary and wages the corporation pays to their incorporated employee
- Any benefit or allowance the corporation provides to their incorporated employee
- Certain expenses of the corporation associated with selling property or negotiating contracts
- Legal expenses incurred by the corporation in collecting amounts owing
- Report the PSB income on line 520 of Schedule 7, Aggregate Investment Income and Income Eligible for the Small Business Deduction (SBD) because it is not eligible for the SBD
- Report the PSB income on line 432 of the T2 return because it is not eligible for the general tax reduction
- Report the PSB income on line 555 of the T2 return because it is subject to an additional 5% tax rate
The PSB does not claim the SBD on line 430 of the T2 return because it is not eligible for the SBD.
Learn more about other income tax obligations: Corporation income tax
GST/HST obligations
Generally, any person must open a GST/HST account, collect, file and remit (pay) the GST/HST if they provide goods or services and earn more than $30,000 over the previous 4 (or fewer) consecutive calendar quarters.
Learn more: Collect, file, and remit (pay) the GST/HST
Payroll obligations for workers of the PSB
The payroll obligations for workers of a corporation carrying on a PSB are the same as those that apply to regular employers and payers.
Generally, the corporation must open a payroll account and file information returns if it makes payments to its employees or self-employed workers, including where the employee is also the specified shareholder of the corporation. This includes situations where no withholding is required.
Learn more: Calculate payroll deductions and contributions
Revenu Québec obligations
Depending if the services were provided in the province of Quebec, the PSB may have provincial requirements and obligations.
Learn more: Conditions for a Corporation to Be Carrying on a Personal Services Business | Revenu Québec
Other tax obligations
Depending on the type of industry, the corporation may have other tax obligations, for example:
Payer of a PSB
Understanding the payer’s tax obligations:
Payroll obligations
Generally, any person must open a payroll account and file information returns if they make payments to a corporation carrying on a PSB. This includes situations where no withholding is required.
Generally, if the payer makes a payment for a service outside of an employment relationship or tenure of office, the payer must fill out a T4A slip which includes any fees or other amounts paid for services between businesses, including sole proprietors and corporations. Depending on the situation, the payer may need to fill out a T4A-NR, T5018 or T1204 instead.
Learn more: Payments of fees for services
Income tax obligations
The payer must report and pay tax on all income earned from taxable activities. The income is the net earnings from business, employment, property, investments and benefits. To report and pay tax on business income, the payer must calculate the business income and expenses using one of the following forms when filing their income tax return:
T1 return (business income)
Form T2125, Statement of Business or Professional Activities
Learn more: Lines 13499 to 14300 – Self-employment income
T2 return (corporate income)
Schedule 125, Income Statement Information
Learn more: Completing your corporation income tax return
T5013 return (partnership income)
Schedule 125, Income Statement Information
Learn more: T5013 Partnership Information Return filing requirements
Learn more about other income tax obligations:
GST/HST obligations
Generally, any person must open a GST/HST account, collect, file and remit (pay) the GST/HST if they provide goods or services and earn more than $30,000 over the previous 4 (or fewer) consecutive calendar quarters.
Learn more: Collect, file, and remit (pay) the GST/HST
Other tax obligations
Depending on the type of industry, the payer may have other tax obligations, for example:
- Information returns account (RZ), for businesses that file information returns, such as T5, T5013, and more
- Registered charity account (RR), for businesses that are charitable organizations
- Underused housing tax account (RU), for corporations that file an Underused Housing Tax return for each of their properties in Canada.
- Fuel charge account (CT), for businesses that need to include a fuel charge on products
- Excise duties account (RD), for businesses that need to charge excise duty on products
- Excise tax and special levies account (RE), for businesses that need to charge excise tax on products
- Air travelers security charge account (RG), for air carriers that charge the air travelers security charge
- Insurance premium tax account (RN), for brokers and agents who place contracts of insurance
- Luxury tax account (LT), for businesses that need to charge luxury tax on the sale or importation of select luxury items
Keeping records
Taxpayers must keep track of all of the income that they earned and the expenses that they incurred for business purposes.
Learn more: Keeping records
Consequences of non-compliance
When non-compliance is identified, the CRA:
- Educates the taxpayer on their tax obligations
- Ensures the correct returns are prepared and filed
- Takes the necessary enforcement actions to ensure compliance with the law
Depending on the situation, penalties may be assessed. If taxpayers do not pay an amount that is due, the CRA may apply interest from the day the payment was due.
Learn more:
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