A personal services business is a type of business that earns through personal services income. There are literally a huge number of professions that falls under this. Overall, the personal services business is a term given by the revenue service to individuals who earn profit for their skills and personal effort. There are different legislations on how personal services income should be taxed. Contractors, lawyers, medical professionals, and all those who earn by providing personal services are all affected by this legislation. This legislation is however inapplicable to people who do not get any personal services income.
There is actually a significant difference – tax wise – between personal services corporation and personal services business. Incorporated business falling under the classification of personal services business is considered by the Canada Revenue Agency as a non-active business income. If your corporation is identified by the Canada Revenue Business as personal services business, it will entail three tax problems.
- You cannot take claim of Small Business Deduction as this is only applicable to those classified as having active business income.
- You cannot claim a lot of standard business deductions. This includes not being to take claim on expenses such as supplies, office space rental, accounting, and other legal fees against the corporation’s income. Only the employee salaries and benefits are eligible for deduction.
- Potential tax penalties. Corporate taxes are never a laughing matter. Reassessing the tax filings from previous business years along with tax audit may follow suit and possibly be found of years of back taxes.
While there are always certain tax issues befalling personal services. Both corporation and personal services business each have their own unique issues. It should however be emphasized that corporations that carry personal services business that they need to evaluate this matter and decide what to do with the corporation. Even if a corporation becomes classified as personal services business, different rules actually apply under this case.
A corporation may employ individuals who can perform the services the company provides. That employee falls under personal services business wherein they work on behalf of the corporation. Personal Services Business Calgary provides individuals and corporations proper tax accounting as per corporate tax rate. They are highly knowledgeable on income tax matters and they can help attain possible solutions on acquirable tax deductions.