Determine if the worker’s corporation is carrying on a PSB

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Worker who performs services on behalf of their own corporation (personal services business)


Determine if the worker’s corporation is carrying on a PSB

Content has been updated for clarity, completeness and plain language. No changes were made to the existing legislative requirement.

Conditions to be carrying on a PSB

Under the Income Tax Act (ITA), a business of providing services carried on by a corporation is considered to be a personal services business (PSB) if it meets all 5 conditions below.

Select all of the conditions that apply to your situation:


  • The worker provided their services through a corporation
  • The worker, or a person related to the worker, was a specified shareholder of the corporation
    What is a related person

    For an individual, a related person is someone connected to them by blood relationship, marriage, common-law partnership or adoption.

    An individual is considered related to a corporation where:

    1. They control that corporation
    2. They are a member of a related group that controls the corporation
    3. They are related to someone described in a. or b.


    Learn more: Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length

    What is a specified shareholder

    Generally, a specified shareholder of the corporation is an individual who at any time in the year directly or indirectly owns at least 10% of the issued shares of any class of the capital stock of the corporation or of any other corporation that is related to the corporation.

  • The worker’s corporation employs in the business 5 full-time employees or fewer throughout the year
    What is a full-time employee

    An employee who works a full business day on each working day of the year, subject to normal absences due to illness or vacation.

  • The amounts received by the corporation in the year for its services were not paid by a corporation that was associated in the year
    What is an associated corporation

    Generally, a corporation is associated with another corporation if it meets any of the 6 conditions at any time in the tax year.

    Learn more: T2 Corporation – Income Tax Guide – Chapter 2: Page 2 of the T2 return

  • If the corporation did not exist, the worker would reasonably be considered an employee of the payer (the corporation's client) to whom the services were provided
    How to determine if the worker would reasonably be considered an employee of the payer (the corporation's client)

    One of the conditions to determine if a corporation is carrying on a PSB is that the worker who provides services to the payer on behalf of the corporation would reasonably be considered an employee of the payer if the corporation did not exist. This is a question of fact.

    Factors to consider

    Determining if the worker would reasonably be considered an employee of the payer if the corporation did not exist is similar to determining if a worker is an employee or is self-employed.

    This must be analyzed on a case-by-case basis by looking at the working conditions of the worker when providing services to the payer (the corporation’s client). Each case is unique and requires a thorough review of the facts.

    Review the factors considered when determining the employment status of a worker: Employment status: Employee or self-employed.

    If you determine that the worker would reasonably be considered an employee of the payer if the corporation did not exist and if all the other conditions mentioned above are met, the worker’s corporation is considered to be carrying on a PSB.

    Request a CPP/EI ruling

    A worker who provides services to a payer (the corporation’s client) through a corporation carrying on a PSB can be an employee of the PSB or self-employed.

    • You cannot ask the CRA for a CPP/EI ruling to determine if a worker would reasonably be considered an employee of the payer if the corporation did not exist
    • You can ask the CRA for a CPP/EI ruling to determine if a worker is an employee of the PSB


    Learn more on how and when to request a ruling: Request a CPP/EI ruling.

The business carried on by the corporation must meet all of the conditions above to be considered a PSB

References

Resources

Webinar: Personal Services Business

Legislation

ITA: 18(1)
General limitations on deductions
ITA: 18(1)(p)
Deductible expenses available to PSB
ITA: 123
Rate for corporations
ITA: 123.4(1)
General rate reduction (not available to PSB)
ITA: 123.5
Tax on personal services business income
ITA: 124(1)
Federal abatement
ITA: 125(1)(a)(i)
Small Business Deduction (not available to PSB)
ITA: 125(7)
Definition of personal services business and active business carried on by a corporation
ITA: 248(1)
Definition of a specified shareholder
ITA: 251
Definition of an arm's length and related persons
ITA: 256
Definition of associated corporations
ITR: 200(1)
Remuneration and benefits


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Date modified:
2025-06-02