Contract for Incorporated Business

by Tatiana
(Canada, Toronto)

When Are You An Incorporated Employee?

When Are You An Incorporated Employee?


I have incorporated IT business. I know that in order not to be incorporated employee I need to have more than one contract. What if I have only one contract and couple of invoices for provided service. May I to be considered as incorporated employee by CRA? Or in my case I do not need to worry.

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Hello Tatiana,

You need to read my chat on Personal Corporations

Then you might want to check out this chat on Employee vs Self Employed.

The Blunt Bean Counter has an excellent blog titled Is Your Corporation a Personal Service Business?".

In it he actually discusses why CRA cracked down IT consultants. He says, "If you only have one or two clients and your corporation does not employ more than 5 full-time employees, and you do not meet the criteria I discuss in my contractor blog, you risk being characterized as a PSB".

I think you need to discuss your situation with an accountant.

Comments for Contract for Incorporated Business

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Jul 03, 2015
Contract for Incorporated Business
by: Anonymous

Thanks a lot for the information provided. It is very useful for me.

I am good for all criteria that were mentioned in the article, except number of contracts. Here, I need to dig into. The question is do I need to have more parallel contracts (at least 2 contracts during all fiscal year) or can I have just different contracts which follow one by one.

For example: in the first case
One contract for one year and another contract for
6 mounts. #1 and #2 contracts are parallel.

In the second case: one contract for 6 months and a second contract for 6 months.
#1 and #2 contracts are sequential.

Which option will work for CRA?

Jul 07, 2015
by: Laura

I can't say. During an audit, ALL factors are looked at to determine if you are 1. Self employed; and/or 2. Not an incorporated employee.

In addition to looking at your written contracts, they want to know:

- who owns the tools you use
- what control do you have over when and where you provide the services
- can you have an employee perform the service
- is there a risk that you may or may not make a profit
- do your business cards have your business name on them or the company who contracted

.... the list of things they look at is all encompassing so they can determine in fact and substance, are you a personal service business or not.

For example, one of the criteria they look at for incorporated employees is how many employees your corporation hires. Also, the more clients you have, the more likely your business will not be considered an incorporated employee status. I get the impression that having one or two contracts/clients during a year seems to be something they frown upon.

It really is best to ask for a consultation with a certified accountant in public practice. They can look at your unique circumstances and use their professional judgement on where you likely stand. If they feel you are a personal service business, they may have suggestions on how to change this status.

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