Navigating the CRA’s Personal Service Business Initiative: Insights for Family Owned Enterprises

The Canada Revenue Agency’s (CRA) latest initiative has focused on Personal Services Businesses (PSBs). This topic is crucial for anyone operating a family-owned enterprise, especially those who engage independent contractors or run a PSB.

Understanding the Initiative:

The CRA has recently completed Phase I of its Personal Services Business Initiative. Here’s a breakdown of what this means for your business:

1. Phase I Overview:

• Timeline: June to December 2022.
• Methodology: The CRA contacted over 2,100 corporations for an educational outreach. Participants shared their records for review, focusing on T4A and T5018 filing requirements.

2. Key Findings:

• About 10% of participating corporations are likely using PSBs.
• A significant number (64%) of these potential PSBs are incorrectly claiming the Small Business Deduction (SBD), leading to an average corporate tax repayment of $16,711.
• Most PSBs are concentrated in transportation and warehousing (35%), professional services (26%), and construction (13%).

Phase II and III: What’s Next?

1. Phase II (Oct 2023 – Jun 2024):

• Goal: Examine around 2,100 corporations identified as potential PSBs.
• Activities: Voluntary interviews and account reviews to gain deeper insights into PSB operations.

2. Phase III:

• Timeline: To be determined.
• Focus: Assisted compliance and continued education for PSBs, reviewing tax year 2022 and onward.

Implications for Family-Owned Enterprises:

If your enterprise interacts with PSBs or operates as one, it’s crucial to understand these developments:

1. Review Your Status: Ensure your business classification aligns with CRA standards, especially regarding the Small Business Deduction.
2. Stay Informed: Phase II and III will bring more insights and possibly stricter compliance measures.
3. Educate Yourself: Use CRA resources to understand your obligations, especially if your business falls within the highlighted sectors.

Conclusion:

The Personal Services Business Initiative is a critical development for family-owned enterprises in Canada. Staying ahead of these changes, reviewing your tax practices, and seeking professional advice when necessary, can save your business from potential pitfalls. As always, consult with Shajani CPA to navigate these waters effectively.

For more information see The CRA Personal Services Business Pilot or schedule a meeting with the tax professionals at Shajani CPA.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2023 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.