What the CRA asks before it calls your corporation a PSB

Most owner-operators incorporate for a good reason. A corporation takes liability off the house, lets you bill through a business account, and spreads income in a way a personal return cannot. None of that is in dispute.

What is in dispute, when the CRA looks, is whether your corporation is actually a business.

The letter is short. It says the agency is reviewing your corporation and asks you to send records. It does not explain the theory behind the review. Weeks later you learn the theory is a personal services business ruling, and that the ruling can reprice years of income.

What a personal services business is

A personal services business is a corporation that provides services to one client, where the person doing the work would be considered an employee of that client if the corporation did not exist.

That is the whole test. Not what your invoice says. Not what your contract calls you. Whether the working relationship looks like employment once the corporation is set aside.

The consequence is not a penalty. It is a change of tax treatment, and it is harsher than most drivers expect. A PSB loses the small business deduction, so its income is taxed at the general corporate rate. It loses most of the expense deductions a normal company claims, keeping little beyond the salary it pays the person doing the work. And the dividends it pays do not carry the dividend tax credit, which is the mechanism that makes incorporation worth doing in the first place.

A corporation that was saving its owner money becomes a structure that costs more than being a sole proprietor would have.

The four questions

The CRA does not invent a new test for trucking. It applies the same factors courts have used for decades to decide whether someone is an employee or an independent contractor. Four of them carry most of the weight.

Control. Who decides when the work happens, where it happens, and how it gets done? If the client dispatches you, sets your delivery windows, requires you to call in, and can send you somewhere else tomorrow, that reads as control.

Ownership of tools. Whose truck is it? Whose trailer, whose plate, whose insurance, whose fuel card? An owner-operator in their own tractor clears this one easily. A driver in a company tractor with a company fuel card does not, whatever the corporation is called.

Chance of profit and risk of loss. Can you make more by working smarter, or lose money by working badly? A per-mile rate on someone else's equipment with no ability to decline a load is a wage with extra steps.

Integration. Is your work part of the client's business, or a service sold to the market? A dedicated run for one shipper, dressed in your colours but scheduled by theirs, is integrated. Serving twenty brokers from a load board is not.

What the client status does to it

The most common reason a driver gets caught is not their own paperwork. It is that the company they haul for hired them as a contractor while treating them as staff. Dispatch, uniforms, assigned trucks, mandatory apps, discipline for refusing loads.

The CRA looks at the reality of the relationship, and the reality is usually set by the party with more power. That is the part that stings. You can run a clean corporation and still be caught by how the other side behaves.

What records actually answer the question

When the review arrives, characterizations are worth nothing. Records are worth everything.

Contracts matter, but only where they describe what actually happens. A contract calling you an independent contractor, contradicted by a dispatch log showing assigned loads and set start times, makes things worse rather than better. If you have written agreements with multiple clients, keep every one.

Invoices and payment records show the shape of the work. One client for ninety percent of revenue is the fact that starts the review. Several clients, paid on terms, is the fact that ends it. Twelve months of invoices is the single most useful document you own.

Your own operating costs show you carry the business. Fuel, maintenance, insurance, plates, tolls, and repairs paid from the corporate account, in your name, on equipment you own. That is the evidence that a trucking business exists, separate from the client.

Dispatch and scheduling records show who was in charge. Keep your own copies of load offers, including the ones you turned down. A declined load is proof you had a choice, and choice is what separates a business from a job.

Anything showing other clients, marketing, or a business presence beyond one relationship helps. A load board account, a website, business cards, advertisements. Modest evidence, but it answers the integration question directly.

The part usually missed

The review rarely stops at the current year. If a PSB finding lands, the CRA can reassess earlier years, and the interest compounds on each one. A driver who has been incorporated and dedicated to one carrier for six years is not looking at one bad year. They are looking at a rebuilding of six.

The other thing missed is that the ruling does not fall only on the corporation. The client that engaged you can face a liability for unremitted source deductions, which is why a carrier under review has an incentive to describe the relationship as employment and push the problem back toward you.

What to do about it now

Start with the concentration question. If one client is nearly all of your revenue, you are in the exposure zone, and the fix is commercial rather than clerical. Take a second client, even a small one. Twenty percent of revenue from somewhere else changes the character of the business in a way no contract clause can.

Then check who controls the day. If the carrier dispatches you, sets your hours, and requires you to accept loads, records will show that no matter what the agreement says. Either the relationship changes or the documentation stops pretending.

Then build the paper trail before anyone asks. Invoices, contracts, your own fuel and maintenance receipts, load offers you declined. It takes an afternoon to assemble and it is the only thing that speaks when a review arrives.

The review letter does not tell you what the theory is. Your records have to answer it anyway.

---

Sources: Canada Revenue Agency guidance on personal services businesses and the employee versus contractor factors. Figures on diesel, border wait times and freight used across Northern Mile come from Natural Resources Canada, the Bank of Canada, the Canada Border Services Agency and US Customs and Border Protection. How each is collected and normalised is documented at /methodology/nmdi/.