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Last updated: Apr. 2, 2025
Truckers & Trades Beware: How PSB Status Can Turn Your Corp Into a Tax Nightmare
Tom thought he’d done everything right when he incorporated his trucking business last year. The extra $2,000/month he saved in taxes seemed like a smart move until a CRA letter arrived. “We’ve determined your corporation is a Personal Services Business,” it read. His tax rate would nearly double, and all those equipment deductions? Gone.
This scenario is playing out across job sites and truck stops in Canada. The Canada Revenue Agency’s (CRA) Personal Services Business (PSB) rules are catching thousands of independent contractors by surprise. But with the right knowledge, you can avoid becoming another cautionary tale.
Understanding the PSB Red Flags
The CRA isn’t exactly subtle about what triggers a PSB classification. They’re looking for businesses that function like employees in disguise.
Consider this example: Maria’s electrical contracting business in Mississauga. When 85% of her work came from one builder who provided all materials and set her schedule, the CRA reclassified her as a PSB. The result? A $28,000 tax bill on what should have been $12,000.
When it comes to PSB, it’s all about the nature of the working relationship. There is a level of subordination similar to that of an employer to an employee.
These situations share common warning signs:
- Working exclusively or primarily for one client
- Using the client’s equipment and tools
- Your client controls how/when you work
- Having minimal business infrastructure (no website, no business cards, no secondary clients)
- Having less than five full-time employees
- Without your corporation, you’d probably be considered an employee.
According to the CRA, PSB is more common in these industries:
- Trucking & Logistics
- Construction & Trades
- Warehouse/transport workers
- IT/technical consultants
- Real estate professionals
The Devastating Financial Impact of PSB
Let’s talk numbers. A typical small business in Ontario might pay 12-15% in corporate taxes. But as a PSB? The total tax rate becomes up to 44-50% when you factor in:
- The 28% federal rate (instead of the 9% small business rate)
- Provincial taxes range from 11-16% (11.5% in Ontario)
- The additional 5% PSB penalty tax
But the real kicker? The deduction limitations. That $15,000 you spent on truck repairs last year? Not deductible as a PSB. The new tools for your trade? Same story. Even your home office expenses get disallowed.
However, PSBs aren’t just taxed harder, the increased tax obligations create a paperwork nightmare. You’ll be required to:
- Register for a CRA payroll account
- Issue T4 slips to employees (including yourself if taking salary)
- Withhold and remit income tax, CPP, and (optional) EI
- File a T2 corporate return within 6 months of your corporation’s fiscal year-end
- GST/HST collection, remittance and compliance (if you earn over $30K)
- Keeping track of multiple tax and remittance deadlines; otherwise, you can face fines and penalties
How to Stay Out of Trouble
If you’re worried about the possibility of being reclassified as a PSB, there are some steps you can take.
- Mix up your clients – Even one small extra client helps establish you as running a business. Only having one client is a red flag.
- Control your work – Make sure to use your tools and equipment and set your hours whenever possible. If the company that is paying you for your service provides all the tools and equipment and calls all the shots, in the eyes of the CRA, you’re being treated as an employee, not an independent business.
- Look like a real business – It’s important to set up a professional identity for your company. This can include a basic website, business cards, and a separate work phone number to demonstrate that you are not an employee.
- Write clear contracts – Specify that you’re independent, not an employee, and establish what services, tools and equipment you are provided. Ideally, hire a lawyer to help you draw up a contract or review your contracts to ensure you are protected and that the nature of the business relationship is business to business, not business to employee.
- Track everything – Keep records of business expenses and multiple clients. If the CRA asks for more information or you undergo an audit, you will need this paperwork to help prove that you have legitimate business expenses and that you are working for more than one client.
Common Questions About PSB
“Can I work for one client without being a PSB?”
It’s better to follow the 80/20 rule with clients: don’t let any sole client be responsible for 80% or more of your income. Try taking on a few side jobs to diversify your income streams.
“What if the CRA already classified me as a PSB?”
The best thing you can do is seek professional tax help, preferably someone who understands your industry. They can help you determine your best course of action. This could include appealing the decision within 90 days or restructuring your business by adding clients or changing contracts.
“Can I still incorporate as a trucker or tradesperson?”
Yes! But to keep tax benefits, you need to:
- Avoid having only one client
- Use your own tools and equipment
- Operate like a legitimate business
- Carefully track your business expenses.
Your best bet is to get professional tax advice from someone who understands your industry.
“Where’s the official CRA guidance?”
- CRA’s PSB Overview
- PSB Tax Rules Explained
- Free CRA Liaison Officer Help (No-audit, confidential advice)
Remember: The rules aren’t about punishing small businesses; they’re about keeping things fair between regular employees and incorporated workers. With some planning, you can structure your business properly and keep your tax advantages.
Need Personalized PSB Help?
FBC has over 70 years of experience helping truckers, tradespeople, and small businesses navigate CRA rules, including PSB risks. Our team specializes in:
- Structuring your business to avoid PSB classification
- Maximizing legitimate tax deductions for your industry
- Handling CRA disputes proactively
Free 15-Minute Consultation
No obligation, just clear answers. Chat with an FBC expert today.
