PSB and the Tax Court

PERSONAL SERVICE BUSINESS - TAX COURT DECISIONS

Having one's company designated as 'personal service business' (PSB), such that it doesn't receive preferential corporate tax treatment, is a serious consideration for any individual seeking to undertake business through a corporate entity. The Tax Court of Canada has rendered numerous judicial decisions with respect to the characterization of corporate business as that of a personal service business, with their verdict tending to be against the taxpayer.

The following represents extracts from various Tax Court of Canada judgments on the aspect of PSBs and taxation:

"Although there is no universal test to determine whether a person is an employee or an independent contractor, I agree with MacGuigan J.A. that a persuasive approach to the issue is that taken by Cooke J. Market Investigations, supra. The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination the level of control the employer has over the worker's activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility investment and management held by the worker, and the worker's opportunity for profit in the performance of his or her tasks." S&C Ross Enterprises Ltd. v. The Queen, 1999-4601-IT-G.

"The independence he had, stemmed from the management style of the three corporations and not from an independent contractor status. The contractual wording in the DGS contract describing Mr. Pielasa as an independent contractor and not an employee has no foundation in reality. The facts disprove the contractual description and should be ignored. The freedom over his project management and working relationship with the three entities is no different from the independence competent professional employees are commonly granted by their employers. Mr. Pielasa's independence reflected the management style of the three corporations and not an independent contractor." 758997 Alberta Ltd. v. The Queen, 2004 TCC 755.

"With respect to control, I must find that the extent of control that Spantec had and needed over the services provided by Mr. Nance were such that a proper characterization of his services, had he contracted directly with Spantec, would have been one of employment. There is a significant degree of control evidenced by what documents were in evidence. However, I make this finding primarily based upon Mr. Nance’s entirely inconsistent testimony on this very issue at trial compared with his answers under oath on discovery." 609309 Alberta Ltd. and Stan Nance v. The Queen, 2014 TCC 166.

If you are a contractor or consultant in Alberta, and are looking for advice and/or structural planning for your business operations, given the adverse tax consequences associated with having one's corporate business be construed as a Personal Service Business, contact lawyer Christopher Neufeld at Chris@NeufeldLegal.com or 403-400-4092.