Personal Services Business (PSB) – The Solution

There have been a plethora of articles and blogs written concerning PSB’s.  There have been even more articles written lately since the Finance Department introduced new legislation, and I hate to say it they have been fear mongering and not terribly helpful.  It is important to note that PSB legislation is NOT new, and that it has been around since the 1980’s.  What is new is that the new legislation is punitive in the tax rates that are charged on businesses deemed to be PSB’s.  I am not going to rehash all the negatives of PSB’s and all the bad things that can happen (tax wise) to you.  What I am going to do is let you know that there are solutions, and try and help you sleep better at night.
 
For those of you who don’t know I consult for another company called KD Professional Services.  This company has affiliations and programs set up to deal with PSB legislation.  I am here to tell you that there are ways to structure your affairs so that you can stay onside with CRA legislation and still be a contractor.
 
Story time, I had a client come into my office the other day (I know I say this a lot, but it is true.  I meet a lot of people, and a lot of people come to me when they are scared or already in trouble).  The client was worried about PSB legislation and informed me that a lot of his colleagues are also extremely worried.  It turns out that he is already using a third party to insulate himself from the PSB rules, and in my opinion is safe from the legislation.  The problem is that no one has explained this to him or his colleagues.  A little communication would go a long way.  If you are in this situation talk to your “employer” and find out how things are structured, if you are unsure.
 
Solution to PSB problem
There are various entities and programs out there that facilitate contractors working for a single employer.  They structure their agreements and contracts in such a way that they believe they are onside with CRA legislation.  The way this is usually done is that you contract with your own corporation, which then contracts with a third party, which then contracts with the corporation needing services. 
 
For example let’s suppose that I want to work for ABC Co.  I would set up my own corporation, which would then contract to ZYX Co who is a third party facilitator for ABC.  ZYX would then contract with ABC to have my company work through ZYX for ABC.  My company would invoice ZYX, ZYX would invoice ABC, ABC then pays ZYX, and ZYX pays my company.  This is an over simplification, but essentially works based on interpretation of legislation and existing court cases.  I also know of another slightly more complex system that is even more fool proof and is structured to guarantee that you can operate as a contractor and stay ahead of the CRA rules.  If you are really worried please contact me at KD (403-219-0602) and I will share more specific details and put you in touch with a structuring specialist that can help guarantee that you comply with CRA legislation while still remaining a contractor.
 
If you are working in Oil and Gas or for a major corporation as a consultant you are probably already using a third party.  If you are invoicing someone other than the company you are “working” for, then you are probably onside with the legislation already.  I say probably because CRA may attack this structure in order to test it in court.
 
If you are the victim of one of these audits (that will likely happen in the near future) don’t give up and accept defeat.  Fight it.  Also know that I know of another way to remain a contractor and be onside with the legislation.  It is important to know that you must set up proper structuring ahead of time.  You must plan ahead and not wait until CRA comes knocking to act.
 
In conclusion, the PSB legislation should not be taken lightly, but there are ways to structure your affairs in such a way (legally) so that you can continue to be a contractor and not have to worry about the PSB legislation.  Don’t get caught.  Plan ahead and plan to succeed.