Let’s face it – oil and gas prices are declining and we are now hearing the “R” word floating around (for Recession). In one of our recent blog posts, we talked about the opportunity to make lemonade out of lemons and the advantages and disadvantages of being an independent contractor.

Like all things, one important issue to think about before incorporating a consulting services business is tax. Are you really an independent contractor or are you carrying on a “personal services business”?

In general, a corporation has the ability to deduct certain business expenses, and there is also the advantageous “small business deduction” that may be available. However, if your corporation is found to be a personal services business, then these benefits would not be available to you. You would be limited to deducting your salary as an incorporated employee and your corporation would be paying tax at corporate tax rates with no general rate reduction and definitely no small business deduction. Essentially, this reduces the tax benefits of having a corporation drastically. To top it all off, you may even be hit with assessment penalties. As the saying goes, the tax man cometh.

Of course, if you are a licensed professional carrying on business through a professional corporation, then there are different rules that are applicable but we will leave that for another day.

The analysis of whether you are performing services as a personal services business is dependent on many factors, such as whether your relationship to the company you are contracted to is more like that of an employer-employee.

This is not to say that everything you do should be dictated by tax, but it is a consideration to keep in mind when you are deciding whether to incorporate your consulting business or not. There may be other reasons why you would want to incorporate.

If you are already incorporated, perhaps it is time to assess your situation and decide what steps to take.

In either scenario, you should seek proper advice from a variety of professionals – your accountant and your lawyer, to name a few.

By Christina Dao of Aarbo Fuldauer LLP

If you have a legal issue that you need reviewed by a lawyer, please contact the law office of Aarbo Fuldauer LLP at:

Address: 3rd Floor, 1131 Kensington Road NW, Calgary, AB, T2N 3P4
Phone: (403) 571-5120
Email: [email protected]

Christina Dao
Barrister & Solicitor
www.aflawyers.ca

*The information contained in this blog is not legal advice. It should not be construed as legal advice and should not be relied upon as such. If you require legal assistance, please contact a lawyer. At Aarbo Fuldauer LLP, our lawyers have broad experience in many areas of practice.  If you require assistance in an area of law that is outside our area of practice, we can refer you a suitable colleague.*