Talent Development Centre

Tag Archives: personal services businesses (psbs)

All Talent Development Centre posts for Canadian technology contractors relating to protecting independent contractors from the risks of Personal Services Businesses (PSBs).

Quick Poll Results: Taking Steps to Prove Independence

Being able to distinguish yourself as an independent contractor as opposed to an employee has been an ongoing issue in our industry for years. Sometimes certain headlines and trends bring it to the front-line of concerns and that’s exactly what happened when the Ontario Government’s Bill 148 became law in late 2017.

As the topic regained popularity and concerns once again grew relevant, we decided to ask our readers to review what they’re doing to protect themselves and make it part of our February quick poll and the results are positive. Although there is no single step that every independent contractor takes, it’s clear that many professionals are already doing some great things!

Quick Poll Results: How do you show that you're an independent contractor?

How Will You Know When It’s Time to Incorporate?

This post first appeared on the CA4IT Insights blog on March 20, 2017

How Will You Know When It’s Time To IncorporateIn short, there’s no single milestone in a business’s maturity that dictates incorporation. It depends on a lot of variables, so it may require self-evaluations at multiple phases to determine when exactly the timing’s right for incorporating your small business.

When you’re conducting those evaluations, it’s important to create an accurate profile of your company and to give consideration to what it’ll look like as a corporation. There are distinct advantages and disadvantages to the title.

In the former column, you’ll have much greater flexibility with your taxes, including how you pay yourself—salary, dividends, bonus—or even if you pay yourself. A 15-percent preferred tax assessment on the first 500,000 of profit may prove to be all the incentive you need to leave your earnings in the company.

In the latter, incorporation isn’t inexpensive. And when you’re starting a business, expenses can already feel too numerous to track, let alone cover. Perhaps the only thing more precious than funding in those early days is time. Incorporation’s going to take a big bite out of that, too, because there’s more paperwork that’ll need to be filed—separate tax returns, notifications of share sales and directors’ actions.

If there is a brief answer to the question at the top, it’s this: Incorporating a business in Canada should not be entered into lightly. The more you understand, the more comfortable you’re likely to feel with your decision.

As one of the most respected accounting networks across Canada over the last quarter-century (and one of the few that’s ISO-registered), CA4IT specializes in business accounting services, including incorporation advising, for independent contractors, consultants and entrepreneurs. Click here for a free (no-obligation) consultation.

2016 in Review: Business of Independent Contracting

2016 in Review: The Business of Independent ContractingIt’s well-known that successful independent contractors are hard workers, experts in their field and know the best ways to keep a steady flow of work. Something often over-looked by an outsider is all of the extra work an independent contractor has to do just to manage their business. Since we know that IT contracting goes beyond searching for jobs and working on projects, the Talent Development Centre is filled with helpful business tips and contracting advice.

Taking the Leap into Independent Contracting

Just getting into contracting can be a scary endeavor, which is why we posted these articles to help IT professionals in that situation:

Managing Your Independent Contracting Business

We also shared these posts to help manage the business once it’s moving:

Inside Scoop from Eagle’s Executive Team

One of the greatest benefits of the Talent Development Centre is the inside scoop we provide from our executives, who work closely with industry associations. As a result, 2016 also saw these policy-related articles:

What did we miss in 2016? Use the comments below to tell us what you want to learn more about next year.

Update: The CRA, PSBs and Independent Contractors

David O'Brien By David O’Brien,
Vice-President, Government Services at Eagle

NACCBMany independent contractors are aware of, and are of course keenly interested in, the CRA initiative that began over 6 years ago in 2010. Independent contractors’ employment statuses were assessed through several audits that resulted in many deemed to be Personal Services Business (PSB’s). Since then, Eagle has provided resources, presentations and information on the topic, and recently, many of our followers have asked for updates on this issue.

NACCB is the industry association that represents IT Services organizations like Eagle in public policy issues. Eagle is an active member of NACCB and your author currently also serves as the President of the Ottawa Chapter. The NACCB is very active on this PSB issue and works with the CRA, other associations like ACSESS, industry members and contractors directly affected in this assessment initiative.

Here’s a quick recap for those not aware of the details, plus an update on where we are today:

The original audit took place a little more than 6 years ago, over a 13 month period. It identified 300 files, of which 112 were deemed PSB’s or, more specifically, “incorporated employees” (61 were IT-based while another 51 were “professional”). As such, these files were reassessed relative to small business deductions and expenses claimed that were subsequently disallowed, as well as income. The net result of which was thousands of dollars in assessments owed by the business.

As a result, NACCB and other associations worked closely to understand how legislation was interpreted differently by industry than the CRA. To that end, NACCB agreed to work with and support a number of individuals who had been assessed, with a goal to get to a better legal understanding. They engaged a law firm to represent them and file notices of objections, effectively legally appealing the assessment. At the same time, the NACCB continued to have dialogue through multiple meetings with stakeholders and CRA, while each of the 16 cases worked their way through the legal system.

The first case to go to trial resulted in a consent to judgement before the hearing started, which meant CRA was dropping the judgement against this individual. It was then agreed the best approach going forward was to continue to allow every other subsequent case to proceed on their own. The result was that many were deemed not to be PSB’s and dropped while others were confirmed to be a PSB. Those deemed PSB’s were subsequently appealed and dropped.

In the summer of 2015, CRA vacated the remaining 3, meaning all 16 were resolved positively in the favour of those assessed. It is very important, however, to note that each case stood on its own and the individual circumstances of each were different and needed to be considered in each and every case.

While the appealed cases were one track towards better clarity, there was an ongoing dialogue with NACCB and other associations throughout to help industry better understand the legislation. This allowed us to advocate and communicate with members and independent consultants to run their business accordingly. To that end, in April of 2015, CRA issued new guidelines that help IT Consultants determine their employment status.

This article from the CRA is well worth reviewing and provides some clarification. If you have any other questions, please leave them in the comments below.

Differentiate Yourself as an Independent Contractor

A current topic of conversation in the world of independent contractors (ICs) is a “focus” by Canada Revenue Agency (CRA) on determining the true independence of people operating as “independent contractors”.   A couple of bad things that can happen to an IC are (a) they are deemed to be an employee; or (b) they are deemed to be on a personal services contract.

Neither is good because it is likely that, in either case, any and all tax deductions will be denied (for several years back) and if deemed an employee there will be messy fines for non-deduction of normal employee deductions etc.  Not good for the independent contractor.  Not good for the staffing industry.  Not good for the staffing industry’s clients.

Here are a few things independent contractors should be know in order to prevent these situations:

  1. You need to think and operate like a business owner NOT an employee.
  2. You should read up on the rules that CRA uses to determine independence (pay particular attention to “control”)
  3. Incorporate as a company!
  4. You should do anything you can to differentiate yourself from the employees that you will invariably working alongside.  You should NOT look, act or “feel” like an employee.  Some thoughts on that:
  • Pay for any training you take.  It doesn’t need to be a lot of money, but pay professional with laptopsomething.
  • If you go to an employee social event paid by the employer, pay something towards your attendance.  It could even be a donation of a door prize.
  • Try to dress just a little smarter than the average; not out of place, just always professional.  Dress shirt instead of golf shirt; tie versus no-tie etc.
  • Don’t keep regular “employee hours” get there a little earlier (even 15 minutes) and leave just a little later.
  • Do NOT get involved in office politics.
  • Have an accountant that understands the IC world.  Note that they all know it to some extent, but someone who really understands it is invaluable.  This person needs to ensure you are staying onside with the tax rules.
  • Have a lawyer that also understands it and can ensure you are set up correctly.
  • Work with (register with) several agencies.  You do not want an exclusive arrangement with any one agency.
  • Have your own tools.  Most likely you won’t be able to use your own computer on the job for many business reasons — security, access to systems, etc.  However, you can use your own tools to manage your business, your own Smart Phone to manage your schedule, bring your own supplies such as pens, stapler, etc.  to the job site.
  • Be a good corporate citizen and give back to the community.   (It makes you look and act like a business).
  • There are no rules with CRA about how long you can work at any one client.  However, the longer you are on a contract the more you start to look like an employee, and the harder you will need to work to look like a business.
  • If you can demonstrate obvious risk of income, it helps. Fixed price, deliverables-based contracts are one good way.  You do have risk of payment because if the client doesn’t like your work in any given pay period they can choose not to pay you.  As a business that is a good thing, you need to deliver good work and you will be paid.
  • If you can take on multiple clients concurrently it helps. Even charitable work that is unpaid.  You can do work, provide an invoice and credit the work.  This might even be a tax deductible.

This is not an exhaustive list but gives you a broad picture.  You do NOT want to look like an employee.  If you haven’t already, it’s a good idea to get in touch with your lawyer and your accountant to make sure you’re doing everything properly.  Of course, if you have any other questions, you can leave them in the comments section below and we’ll guide you in the best direction.

Contractor Best Practices

Establishing a strong business presence is an important step to ensuring both you and your Independent Contractor business is protected.  It helps to think of your business in terms of two different contexts: the business structure and your behaviour as the business owner.  Below are some tips to help you establish your business presence:

Structural Tips

  1. Business woman bookeepingHire a professional accountant to ensure you’ve properly set up your incorporation
    • Keep detailed records
    • File proper tax returns
  1. Set-up a separate business banking account.
  2. Maintain appropriate expenses
    • Determine in advance what is billable to your client and what will be considered a business expense
    • Keep mileage logs, as well as any home office bills
    • Determine legitimate business expenses, such as your website, marketing costs, etc.
  1. Risk of loss is a key differentiator
    • Is there risk of loss in your contract with your staffing agency?
    • Maintain your own business E&O insurance (talk to Eagle about how to acquire this insurance for $21.00 per month)
  1. Leverage opportunities for more profit through more hours
  2. Discourage your agency, or client, from mandating your hours of operation at a client site
  3. Avoid numbered companies and name your corporation.

Behavioural Tips

  1. Act like a business, not an employee
  2. Avoid the 9 to 5 workday – vary your hours at a client site.
  3. Avoid politics and people issues at a client site
    • Don’t partake in the water-cooler chatter
    • If something, or someone, is in the way of completing your mandate, focus on the issue, not the person
  1. Don’t expect to attend your client’s social gatherings or events such as the annual holiday party. If you do participate, pay to attend  and use the opportunity to network
  2. Take on additional contracts with multiple clients, even if only part-time
  3. Invest in regularly upgrading your skills through training activities paid by your incorporated business.
  4. Bring your own tools to a client site – laptop, office supplies, etc.
  5. Maintain a company internet profile.
    • Website
    • LinkedIn company page
    • Facebook company page
    • Corporate Twitter account
  6. Advertise
    • Maintain your own business cards
    • Maintain a listing in various directories (i.e. Yellow Pages)
    • Consider sponsorship advertising opportunities

Lastly, if you do get audited, let your staffing agency Recruiter know about it. While there are no guarantees, the industry association might be interested in getting involved.

If you have other tips or advice, please share them in the comments below.

Does Your Recruiter Work with an Industry Association

Why Should You Work with a Staffing Company with Industry Association Membership?

Eagle is a strong proponent of participation in associations and memberships within our industry, and we believe that any good corporate citizen really should belong to industry associations.  So why is it important to a candidate, independent contractor or temporary employee to choose to work with an association member in lieu of a non-member?

  1. Serious companies recognize the need to support associations.  Working with a company that belongs to an industry association means that you are working with a company that is serious about their business.
  2. The association fights for the rights of the members, their employees and their contractors. A by-product of that effort is that they are fighting for the non-contributing companies too.  How fair does that sound?  If these companies are not fair to their industry association will they be fair to you?
  3. The members are kept abreast of the issues of the day. As an example, each month, the ACSESS Government Relations Report lists its current initiatives. The NACCB lobbying efforts are also continually focused on a couple of big issues.
  4. How do you know your company understands the rules applicable in the staffing industry if they aren’t involved in the associations that help to define it?  Anyone can “hang out a shingle” and sound credible, but the rules around deductions for temp versus sole-proprietor, or for independent contractors, can get interesting and change quickly.  Associations provide advice on these complex issues and support to their members on how these changes affect their business. The end result is added protection for you.
  5. Industry associations hold their members to a code of conduct and not all companies do! A code of conduct ensures that members remain ethical not only today while you’re working together, but well into the future.
  6. Industry associations will arbitrate and provide expert advice when issues arise.  It is easier if the companies involved are dealing with members.
  7. Industry associations provide ongoing guidance and education to ensure that their members are up-to-date on legislative requirements further ensuring the protection of those that work with them.

Here in Canada there are a couple of primary industry associations that represent the staffing industry:

  1. Association of Canadian Search, Employment & Staffing Services NACCB and ACSESS logos(ACSESS) is the largest, representing the industry in general.
  2. National Association of Computer Consulting Businesses (NACCB) is probably the next largest with a mandate of supporting those staffing companies in the IT space specifically.

There are also local associations.  For example, CabiNet is a local Ottawa-based organization focused primarily on companies supplying contract services to the Federal Government.

How do you know if they are a member of an industry association? Ask them! If they belong to one of the larger organizations mentioned above, visit the association website.  All the members are listed.

The Facts on Personal Services Businesses (PSBs)

The issue of Personal Services Businesses/Personal Services Corporations, or PSBs/PSCs, are a source of much hype, and much confusion in our industry. Before offering up our thoughts and opinions, here are a few facts that are important:

This is not new. The federal government amended the Income Tax Act well over 30 years ago to essentially prevent people from leaving their job with their employer, only to return immediately thereafter as a contractor so as to realize more optimal tax benefits.

The generally recognized precedent-setting case involved a high-profile sports figure named Ralph Sazio, a coach with the Hamilton Tiger Cats.

In the Fall of 2013 changes were made to the tax rates applying to PSBs that make it quite unappealing for anyone to operate under this designation.

Almost four years ago now, the CRA assessed over 300 Independent Businesses and found in the range of 115 of these to be PSBs. Over 60 of those were in the IT space alone. What is the industry doing about this?

NACCB and ACSESS logos

The IT staffing association in Canada, the NACCB, became engaged. I, as the current Chair of the Board of NACCB, and Ian MacMillan, a founding member, are leading this file.

The general staffing association, ACSESS, soon joined in. Mary McIninch from ACSESS, arguably one of Canada’s foremost authorities on Government issues relating to staffing, has also engaged in this issue.

We jointly selected one Independent Contractor case and provided financial support to the Ottawa law firm that was arguing on behalf of the Independent Contractor.

We have also been working with the CRA to endeavour to bring greater clarity to the issue, largely by helping them understand that certain criteria no longer applies in today’s business climate.

Here is the current status:

With regards to the case we were pursuing, the CRA issued a Consent Judgment. What that means is this particular contractor won as the CRA overturned its original decision. Great outcome for the Independent Contractor; however, it did not provide us with any legal precedent setting. We are awaiting decisions on approximately a dozen other cases and will decide upon the next course of action when those decisions come in.

After some setbacks with respect to people’s availability, we are back on the CRA agenda and have a meeting on June 11th, at which time we’ll be able to gauge their ability to bring clarity to this issue. This discussion will focus on various criteria used by the CRA to determine a PBS (e.g. who controls the work, who provides the tool, opportunity for profit/risk of loss, etc.)

The most important thing you can do is to think and operate like a business. Next week we will give you some tips…stay tuned!