Accounting for consultants & agencies.

Questions worth getting ahead of

• Checking whether an incorporated consultant is carrying on a personal services business
• Understanding the tax cost if a corporation is treated as a PSB
• Reporting fees paid to subcontractors and freelancers
• Deciding when services to a client outside Canada are zero-rated
• Keeping one-client arrangements documented

Test your incorporated practice against the PSB rules

Many consultants work through a corporation, and the CRA looks at whether it is carrying on a personal services business. The CRA lists five conditions that must all be met: the services are provided through a corporation, the worker or a related person is a specified shareholder (generally 10% or more of the shares), the corporation has five or fewer full-time employees throughout the year, the amounts were not paid by an associated corporation, and the worker would reasonably be an employee of the client if the corporation did not exist. The last point is a question of fact. Bring your client contracts and a description of how the work is directed.

Know what a PSB changes

If a corporation is carrying on a PSB, the CRA says its income is not eligible for the small business deduction or the general tax rate reduction. It is subject to full federal and provincial corporate rates plus an additional 5% tax, and the corporation can deduct only a narrow set of expenses. Those include salary and benefits paid to the incorporated worker, certain expenses of selling property or negotiating contracts, and legal costs of collecting amounts owed. Ask for the PSB question to be reviewed before you incorporate or sign a long engagement with a single client, not after the first T2 is filed.

Report what you pay your own subcontractors

Agencies and consulting firms often bring in freelancers, designers or specialists. The CRA says fees paid for services outside an employment relationship are generally reported on a T4A slip, and that payments over $500 in a calendar year must be reported. The CRA is currently not assessing penalties for failing to complete box 048, apart from a trucking industry exception, but it has also said Budget 2025 proposed funding for a focused program on non-compliance involving personal services businesses and reporting fees for service. The 2026 slips are due March 1, 2027. Collect each subcontractor’s legal name, address and tax number when you engage them.

Clients outside Canada may be zero-rated

The CRA says certain advisory, professional or consulting services performed all or partly in Canada can be zero-rated when supplied to a non-resident, other than to an individual while the individual is in Canada. Advertising services supplied to an unregistered non-resident are also on that list. The rule turns on who the customer is and the type of service, and not on where your office is. Keep evidence of each client’s residency and GST/HST registration status along with the engagement letter. Review each new foreign client with your accountant before the first invoice is issued.

Support to discuss with Sora