What is a Personal Services Business (PSB)?
Personal Services Business - Deductions are Limited
Personal Services Business Corporate Tax Rate
CRA Personal Services Business Investigations
Canada Revenue Agency (CRA) Resources
Sometimes contractors are hired with the requirement that they incorporate and provide their services through their corporation. If, without the corporation, they would be an employee, then their corporation is considered to be a personal services business.
There are tax implications to being a personal services business:
A personal services business (PSB) carried on by a corporation in a taxation year means a business of providing services where
is
However, if the corporation employs more than 5 full-time employees throughout the year it will not be considered to be carrying on a personal services business.
If the individual performing the services would be considered a contractor and not an employee, then the corporation would not be considered a PSB. See our article on Employee vs Self-Employed Contractor.
In 2015 Tax Court Case C.J. McCarty Inc. v. The Queen, a corporation which was providing project management services to a client was found to be providing those services as an independent contractor, NOT as a personal services business.
In 2004 Tax Court Case 758997 Alberta Ltd. v. The Queen, a corporation which was providing services to a client through a placement agency was found to be a PSB.
S. 18(1)(p) of the Income Tax Act restricts the deduction of expenses of a personal services business of a corporation to the following allowable deductions:
The above amounts are only deductible by a personal services business if they would be deductible by a business other than a personal services business.
A personal services business is not eligible for the small business deduction or, for taxation years that begin after October 31, 2011, the general rate reduction. The 2016 Federal Budget increased the federal corporate tax rate for personal services business from 28% to 33%, effective for the 2016 and later taxation years.
The owner of a personal service business would have to do some analysis to determine whether any profits should be left in the corporation, or should all be paid out as salaries/bonuses. Our Canadian Tax Calculators can do the calculation of the personal taxes under different scenarios.
The 2025 Budget includes a provision to allow the CRA to share taxpayer information and confidential information with Employment and Social Development Canada (ESDC) in order to address "worker misclassification". See Minister Champagne clamps down on Driver Inc. scheme in Budget 2025.
Some employers, apparently especially in the transportation industry, insist on their "employees" incorporating. Why? Because the employers can then avoid:
It is possible that the employer pays an increased rate to allow for all of the above. If you truly are a contractor, then your hourly rate should take the above costs or missed benefits into account.
In July 2022, CRA sent out a communication regarding a PSB project they have commenced. See more information on this in the Video Tax News article Personal Services Business - CRA Education Project, which includes a link to the communication sent by CRA.
CRA launched its Personal Services Business Pilot in 2022. Phase I, Identifying companies that hire PSBs, was completed in 2022, and one of the findings was that nearly 74% of the potential PSBs identified work in 3 sectors/industries:
Tax Tip: If you are an incorporated contractor with only 1 client, you may be a Personal Services Business.
Personal Services Business Webinar
T2 Corporation Income Tax Guide (T4012) - Personal Services Business
T2 Corporation Income Tax Guide (T4012)
IT-73R6 The Small Business Deduction (Archived)
IT-168R3 Athletes and Players Employed by Football, Hockey and Similar Clubs (Archived)
Revised: November 08, 2025