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PERSONAL SERVICE BUSINESS - TAXATION

Canada's corporate tax structure underwent significant changes when the Canadian government chose to change the tax classification of contractors and consultants who conduct their business operations through a company and that company meets the criteria for being deemed a personal service corporation / personal service business ("PSB").

These severe tax law changes came about when Finance Minister Jim Flaherty introduced specific technical income tax amendments that were included in Bill C-48 (Technical Tax Amendments Act, 2012) that became law on June 26, 2013. The Technical Tax Amendments Act amended the definition of a corporation's “full rate taxable income” in subsection 123.4(1) of the Income Tax Act (Canada) to exclude income earned by a company from a personal service business. The effect of this amendment precludes the income earned by a personal service corporation from being eligible for the general Canadian federal corporate tax rate reduction pursuant to subsection 123.4(2) of the Income Tax Act (Canada).

The effect of the amendments was to make the income earned by a company from a personal service business for taxation years that begin after October 31, 2011 (the date that the legislative change was first introduced by Finance Minister Jim Flaherty) will be taxed at the basic Canadian federal corporate tax rate of 28% (assuming the provincial abatement is available such that the basic Canadian federal corporate tax rate is reduced from 38% to 28%) and will no longer be entitled to the 13% general Canadian federal corporate tax reduction. The financial significance of this change is considerable, as one's business accountant can clearly demonstrate.

As such, in light of these drastic changes, it is important to understand the legal and tax implications to your business operations, such that appropriate legal advice and structuring is undertaken to deal with your specific situation. Therefore, if you are a contractor or consultant in Alberta, and are looking for advice and/or structural planning for your business operations in light of the Technical Tax Amendments Act, 2012 and its impact should one's business be construed as a personal service business, contact Neufeld Legal P.C. at Chris@CalgaryBusinessLawyer.ca or 403-400-4092.

Making a commitment to providing effective legal services to corporate leadership through the various phases of a company's existence, from its inception through its operational management and engagement in key strategic moves to the purchase and sale of the company (mergers, acquisitions and divestitures). What we strive to provide is the legal insight and direction that comes from years of working with a multitude of corporations, sole propreitorships and partnerships in advancing their business objectives. Our mailing address is Neufeld Legal P.C., 144 - 4th Avenue SW, Suite 1600, Calgary, Alberta T2P 3N4. Legal Disclaimer. Privacy Policy. © 2013.