In this webinar we discuss the major issues affecting the independent consulting industry including the recent bill 88 and bill 213. We also cover the benefits of incorporation and the biggist issue facing the it consulting industry, Personal Service Business (PSB) risk
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To help entrepreneurs
organize their finances,
create wealth,
and transform wealth into a
legacy.
About CPA4IT
• We are curious
• We are always learning
• We innovate
• We are systematic
• We communicate
• We are inclusive
MISSION VALUES
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• We review pros & cons
of each individual’s
case to ascertain that,
in fact, incorporation is
for you.
Free initial
consultation
• in house paralegal firm
to incorporate
contractor - 48 hour
turnaround
Turnkey • we provide each client
with a graphical
benchmarking analysis
comparing their results
to the average
Benchmarking
• CPA4IT will handle all
negotiations up to the
end of the appeal
stage without further
charge
Audit
Protection • CPA4IT has been
Specializing in
independent
contractors since
1984
Industry Expertise
Top 5 Reasons to Refer CPA4IT
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1. They Can Save
You Time (and
Time Is Money)
2. They Can Recommend
Legal Strategies to Save
You Money
3. They Know
What Is Not
Deductible
4. They
Know What
Is Deductible
5. A Good Accountant
Is Like a Truffle Pig,
But for Money
6. An Accountant
Can Help You
Plan for the Future
Top 10 Reasons to hire an accountant
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Significantly
Reduce Your
Taxes
Build A Big
Corporate
Retirement
Fund
Get A Tax
Free Loan
Receive
Tax Free
Retirement
Dividends
Smooth
Income
Protect
Personal
Assets
Additional
Tax/Financial
Strategies
Available
Benefits of Incorporating
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Including
your spouse
as a director
Failing to
prepare your
initial minutes
and corporate
minute book.
Improperly
structuring
your
corporation
Opting for a
numbered
company
Not Hiring a
professional
Top 5 Mistakes Made When Incorporating
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I’m on a work
permit can I
still
Incorporate?
Now that I
have
incorporated,
what am I
required to do?
Do I have to
have two
signatures,
e.g. President
and
Secretary?
I have just
incorporated,
what is an
ideal fiscal
Year-end?
How long does
it take to do
the
Incorporation?
Top 5 Questions About Incorporating
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Ontario Non-Residents can now Incorporate – Bill 213 Amendments
As of July 5, 2021 and under the New
Legislative Amendment passed in Ontario Bill
213, Corporations that have Incorporated
Provincially in Ontario Do Not require to have
a Resident Canadian as Director.
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Jurisdiction Requirements
Jurisdiction Director's residency requirements
Federal (Canada)
At least twenty-five per cent of the directors of a corporation must be
resident Canadians. However, if a corporation has less than four
directors, at least one director must be a resident Canadian.
Alberta No requirement
British Columbia No requirement
Prince Edward Island No requirement
Ontario No requirement
Manitoba
At least 25% of a corporation's directors must be residents of Canada.
If a corporation's board is comprised of three or fewer directors, one of
them must be a resident of Canada.
New Brunswick No requirement
Nova Scotia No requirement
Nunavut No requirement
Quebec
Not in the actual Companies Act and not in the future new Business
Corporations Act in Quebec.
Saskatchewan At least 25% of the directors of a corporation must be resident
Canadians, but if a corporation has fewer than four directors, at least
one director must be a resident Canadian.
New Founland and Labrador No requirement
Northwest territories No requirement
Yukon No requirement
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Gained notariety for
the New Minimum
Standards for Digital
Platform Workers
Has a significant
impact on the IT
Staffing Industry
On April 11, 2022, Bill 88 – the Working for
Workers Act, 2022 (“the Act”) – became law. It
enacts a Digital Platform Workers’ Rights Act,
2022, and makes amendments to the Employment
Standards Act, 2000, the Occupational Health and
Safety Act, 1990, and the Fair Access to Regulated
Professions and Compulsory Trades Act, 2006.
Bill 88 – A Significant Impact
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Subsection 1 (1) of the Employment Standards Act, 2000 is amended by
adding the following definitions:
“Business consultant”
Means an individual who provides advice or services to a business or
organization in respect of its performance, including advice or services in
respect of the operations, profitability, management, structure, processes,
finances, accounting, procurements, human resources, environmental
impacts, marketing, risk management, compliance or strategy of the
business or organization; (“conseiller commercial”)
“Information technology consultant”
Means an individual who provides advice or services to a business or
organization in respect of its information technology systems, including
advice about or services in respect of planning, designing, analyzing,
documenting, configuring, developing, testing and installing the business or
organization’s information technology systems; (“conseiller en technologie
de l’information”)
Bill 88 – New Definitions
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Business and IT consultants
(7) For the purposes of paragraph 11.1 of subsection (5), the following
are the requirements that must be met:
1. The business consultant or information technology consultant
provides services through,
i. a corporation of which the consultant is either a director or a
shareholder who is a party to a unanimous shareholder agreement, or
ii. a sole proprietorship of which the consultant is the sole
proprietor, if the services are provided under a business name of the sole
proprietorship that is registered under the Business Names Act.
2. There is an agreement for the consultant’s services that sets out
when the consultant will be paid and the amount the consultant will be
paid, which must be equal to or greater than $60 per hour, excluding
bonuses, commissions, expenses and travelling allowances and
benefits, or such other amount as may be prescribed, and must be
expressed as an hourly rate.
3. The consultant is paid the amount set out in the agreement as
required by paragraph.
4. Such other requirements as may be prescribed.
Bill 88 – ESA Exemption for Contractors
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Is the biggest threat
facing incorporated IT
consultants
New Special Project
Announced in Feb 22
and running from June
– Dec 22
Is CRA looking for
PSC’s or any situation
where they can prove
the contractor is not a
true “independent
business”?
The Current PSB/PSC Climate
High Impact
Low Risk
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Act like a business & be treated like one!
Control Test
What to do vs.
how to do it!
Ownership of
Tools Test
Who supplies?
Chance of
Profit or Loss
Risk assumed?
Integration
Test
Integral part of
client’s
business or an
accessory?
Detailed
written
contract
Contractor
Conduct
Business
Presence
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CPA4IT’S Fight Against PSB/PSC Risk
Since 1984, CPA4IT has been championing the income tax
rights of incorporated independent contractor IT professionals.
In the 1980’s, many accounting firms actually turned away
incorporated IT professionals as clients, as these
accounting firms were themselves afraid of PSC risk.
CPA4IT has fought and won all of it’s major PSC cases against
the CRA.
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CPA4IT Strategies to Reduce PSB/PSC Risk
Strong, clear and correctly worded written contract
Work relationship conduct must support the contract
Limit contract length
Diversify your client base
Implement asset protection strategies
Control your work
Get liability insurance
Build a professional profile
Your company's name should reflect your services
Hire experienced professionals to represent you
PSB
Risk
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Employee vs. Contractor - GuideRC4110
CRA Guide
4110
Employee
Vs.
Independent
Contractor
Control
Tools &
Equipment
Subcontracting
work
Financial Risk
Responsibility
for investment
Opportunity for
Profit
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Specific to Information technology consultants.
Be careful not to put your foot in your mouth.
Facts that may be considered neutral:
For security reasons and because the nature of the work makes this
necessary:
The IT consultant must provide their services at the payer’s place of
business.
Indicators that the worker is an employee
Requires that the IT consultant provide services at the payer’s place of
business to allow the payer to monitor or provide direction as to how
the work is done;
https://www.canada.ca/en/revenue-agency/services/tax/canada-pension-plan-cpp-
employment-insurance-ei-rulings/cpp-ei-explained/canada-pension-plan-employment-
insurance-explained-information-technology-consultants-employees-self-employed-
workers.html
Secret CPP and EI Information Bulletin
Significantly Reduce Your Taxes
You can significantly reduce your overall income taxes by leaving income in your corporation that will only be taxed at approximately 20%, and avoid the highest personal income tax rates of 40% to 50%.
Build A Big Corporate Retirement Fund
Using the low corporate income tax rate of approximately 20%, you can retain income in your company, and use your company as a strategy to accumulate a significant retirement investment portfolio for yourself.
Get A Tax Free Loan
You may be eligible to borrow money from your company to buy a home or automobile without having to immediately declare the loan as personal income.
Receive Tax Free Retirement Dividends
Upon retirement, or during a sabbatical from working, your spouse and you can receive dividends of approximately $30,000 each from your company, and if you have no other personal income, the total $60,000 of dividend income can be received as personal income tax free.
Smooth Income
Should your IT contracting or consulting income fluctuate significantly from one year to the next, you can use your company to smooth out your personal income over two or more years, resulting in lower overall income taxes.
Protect Personal Assets
Your company provides you with limited liability from your corporate IT contracting work, resulting in protection of your personal assets.
Additional Tax/Financial Strategies Available
Corporations have additional tax and financial planning strategies available for your use such as the creation of individual pension plans, investment holding companies, joint venture companies, etc.
Including your spouse as a director
Including your spouse as a director when it is not necessary, and could create a fiduciary responsibility and unnecessary risk for your spouse.
Failing to prepare your initial minutes and corporate minute book.
You are required by law to own and maintain a minute book with record of all transactions that have transpired in your corporation
Improperly structuring your corporation
Accepting the default share structure could lose you a lot of tax strategies that would be available to a properly structure company..
Opting for a numbered company
Taking a shortcut and opting for a numbered company, when it only takes a few minutes to reserve a name.
Incorporation
How long does it take to do the Incorporation?
It typically takes 1-2 days for the name search and an additional 2-3 days to file the articles
of Incorporation. The complete process takes approximately 5 business days.
Incorporation
If I'm not incorporated how much of my income do I have to claim?
Whether you are a sole proprietor, professional or partner, all income that you receive in the
course of self-employment is considered income from business and must be claimed
personally.
Your taxable income from self-employed business includes:
•Money, credit or an exchange of services (barter)
• Awards that are received because of your business activities, such as trips, appliances
(and the like), and
• Government grants and other financial subsidies, whether from the public or
private sector.
Your gross income is determined after deducting the GST/HST (Or other rate if you use the
Quick Method of accounting for GST) PST allowances and returns.
Incorporation
I have just incorporated, what is an ideal fiscal Year-end?
It is usually a good idea to fit in an entire fiscal year in before doing your year-end. You must
choose a year-end within 53 weeks (i.e. 371 days) from your date of incorporation. For
convenience many people choose a month end date. If the company was inactive for a
while after incorporation, it can be beneficial to have a short year-end.
Incorporation
Do I have to have two signatures, e.g. President and Secretary?
Only one signature is necessary. It is important to remember that you need your articles
of incorporation to set up a bank account.
Incorporation
Now that I have incorporated, what am I required to do?
These steps are what you should do immediately after you incorporated: •Open up a business
chequing account •Obtain a business number from Canada Revenue Agency •Fill out an
initial notice within the prescribed time and file this form with the Ministry
of Consumer and Commercial Relations
Bill 213 Eliminates the requirements that at least 25% of the Directors of an Ontario corporation must be resident Canadians. This means that Non-Residents may Incorporate a company in Ontario without necessarily having a Canadian Resident as Director of the company.
This Amendment facilitates foreign businesses and investors in Ontario to register a Company, as well it reduces the time spent and simplifies the administrative work associated to registering a business.
Although Non-Residents can now easily incorporate in some provinces in Canada, the Corporation may be considered a Non Canadian Controlled Private Corporation (Non CCPC) and will not be eligible for the Small Business Tax Deduction.
In Ontario a corporation that is a Canadian Controlled Private Corporation (CCPC) only pays 12.2 % on the first $500,000. A non CCPC will not qualify for the small business tax deduction and will pay be subject to the General Corporate Rate which is 38%.
Ontario workforce recovery comitted inJuly 2021 the NACCB began a lobing effort to provide a submission to the ontario workforce recocovery advisor comitted owrac
Also working on alobbhying effor around WSIB in october wsib released its proposed policy modificatin the second phase on this closed on November 16 and we are currently awaiting policy updates
Moving premium on class l from .13 cents to . 23 cents and this is alligned with the consulting firms ( which before was different)
T employment agency licencing regime
Current whitepaper was just released last night and there was concerned around the 50,000 entry fee and this has been revised down to 25,000
Nacceb will be provideing additional feedback before december 6th
Currently have a majority government until 2026 and there is a policy shortage. This is creating a great opportunity for stakeholders to fill the vacuume with policy suggestions for the next 2 years there is an opportunity for the next 2 – 2.5 years
Must get policy wins and defend thos policy wins otherwise these policies could all be reversed
Need ways to ensure the issues are solved and how the knowledge worker industry requires a complete different approach to other segments
As of January 1, 2023, business consultants and information technology consultants who meet the criteria stated above will be excluded from the application of the ESA, which means certain minimum standards will not apply to them.
Going forward many agencies will not take subcontractor earning less than $60/hour.
Most Contractors earning $60/hour will receive a financial benefit of incorporating.
Personal Service Corporation (PSC) Risk is the greatest CRA threat facing incorporated IT consultants.
CRA is looking for PSC’s or any situation where they can prove the contractor is not a true “independent business”
ITA 125 (7) also defines “personal services business” as:
“personal services business carried on by a corporation in a taxation year means a business of providing services where an individual who performs services on behalf of the corporation (in this definition and paragraph 18(1)(p) referred to as an “incorporated employee”), or any person related to the incorporated employee is a specified shareholder of the corporation and the incorporated employee would reasonably be regarded as an officer or employee of the person or partnership to whom or to which the services were provided but for the existence of the corporation, unless the corporation employs in the business throughout the year more than five full-time employees, or the amount paid or payable to the corporation in the year for the services is received or receivable by it from a corporation with which it was associated in the year” (emphasis added).
Between June and December 2022, CRA officials will lead an educational outreach project by contacting Canadian businesses that potentially hire personal service business, to help determine whether or not these companies are fulfilling their tax obligations. Learn more here.
CA4IT Provides a Unique Audit Insurance which can protect independent contractors.
CA4IT has developed a proprietary 76 page response to CRA PSC attacks.
CA4IT has developed a sample response to the CRA Questionnaire
