PSB Contract Review: How We Read Your Contract for PSB Indicators
A PSB contract review is how we read your agency agreement, statement of work and end-client onboarding papers for signs that CRA could treat your Ontario corporation as a personal services business. We then compare the paper to how you really work. The rate gap is wide: 11.2% on small business income versus 44.5% on PSB income.
What is a PSB contract review?
I start with the contract, because CRA can ask for it in a PSB review. A PSB contract review is not a separate service we sell. We review your contract and working facts as part of the tax planning we already do for your corporation.
The question behind it comes from section 125(7) of the Income Tax Act. Your corporation earns PSB income if you, the person doing the work, or a person related to you, own 10% or more of any class of its shares, directly or indirectly, and you would reasonably be regarded as an officer or employee of the client if your corporation did not exist. If your corporation has no other employees and bills an agency it is not associated with, neither exception in the definition applies. So the answer turns on the working relationship. Our page on personal services business risk explains the rules in full.
The cost is why the review matters. In Ontario, income eligible for the small business deduction is taxed at a combined 11.2% from July 1, 2026. PSB income is taxed at 44.5%. On $150,000 kept in the corporation, that is $16,800 versus $66,750, a difference of $49,950. For a December 31, 2026 year-end, the small business rate is a blended 11.70%, because income earned before July 1, 2026 was taxed at 12.2%. PSB status also limits deductions under section 18(1)(p) to salary, benefits and allowances for you, certain costs of selling property or negotiating contracts that an employee could deduct, and legal costs to collect fees owed.
Which documents do we read?
Many incorporated contractors work in a three-party setup: their corporation, a staffing agency and an end client. CRA looks at whether you would reasonably be an employee of the party you really provide the services to. That can be the end client, even though the agency pays your invoices. So we read every layer of paper. Our page on agency contracts explains the three-party setup in more detail.
The agency agreement
This is the contract between your corporation and the agency. It sets the rate, the term, termination rights, insurance and indemnity terms, and often limits on working for the end client directly. Many agency agreements also pass the end client’s rules down to you.
The statement of work
The statement of work, or work order, describes the assignment: the role, the dates, the hours, the location, the manager you report to and sometimes the deliverables. It often says more about control than the master agreement does.
End-client onboarding documents
Banks, insurers and government clients often send their own package: a code of conduct, IT security and acceptable use rules, a badge request, required training and sometimes a background check. You may sign some of these in your own name. They show how the client actually treats you.
What do we look for in each clause?
I read each clause for what it can indicate about the factors from Wiebe Door Services Ltd. v. M.N.R. and 671122 Ontario Ltd. v. Sagaz Industries Canada Inc.: control, ownership of tools and equipment, chance of profit and risk of loss, and integration. The central question is whose business it is. No single clause decides that.
| Clause | What it can indicate | What facts we ask about |
|---|---|---|
| Parties | Who the services are really provided to, and whether your corporation is the contracting party | Who signs each document, who you deal with day to day |
| Term and renewals | An open-ended role renewed again and again can point to integration | How long you have been there, how many renewals, whether the scope changed |
| Rate basis | Hourly pay with no downside suggests little chance of profit or risk of loss | Who set the rate, whether you carry rework, unpaid time or bad debt |
| Hours and schedule | Fixed hours and set core hours can point to control | Who sets your schedule in practice, how time off is handled |
| Location and remote access | Required onsite days or VPN-only access can point to control | Where you actually work, whether the rule applies to every vendor |
| Equipment | A client laptop and client software point to the client’s tools | What your corporation owns and pays for, including software licences |
| Supervision and reporting line | A client manager who directs how you work points to control and integration | Whether the manager sets methods or only signs off results |
| Timesheet approval | End-client approval can point to control over your time | Whether approval only verifies billing or is used to manage you |
| Termination | One-way termination at will, with no fee, can point to control | Whether rights are mutual, whether work in progress is paid |
| Substitution and helpers | A personal services only clause points away from your own business | Whether you could send a substitute or hire help, and whether you have |
| Exclusivity and non-solicit | A non-compete limits your chance of profit from other clients | Other clients this year, how you market your corporation |
| Insurance and indemnity | Carrying your own liability insurance and risk for errors can weigh toward a business | Whether you hold the policy, who pays, any cost of fixing work |
| Client policies and training | Staff-style training, reviews and policies can point to control and integration | Whether the rules apply to all vendors or only to staff, any client title or email |
Hours, schedule and timesheets
IT and finance contracts usually fix 35, 37.5 or 40 hours a week, and the end client approves the timesheet. These are control indicators, but hours alone never decide PSB status. We look at who really sets your schedule. Our page on 40 hour contract PSB risk covers the hours clause in detail.
Substitution, exclusivity and termination
A clause that says only you can do the work matters, because personal service is a feature of employment. A business can usually send someone else or hire help. A non-compete that stops you serving other clients matters more than a narrow non-solicit. Termination terms are a weaker sign on their own, but a one-way right to end the contract at will, with no fee, fits an employment pattern more than a deal between two businesses.
Insurance, indemnity and client policies
If your corporation must carry its own liability insurance and bear the cost of its own errors, that can weigh toward a business, but only if you actually hold the policy. Client policies that apply to every vendor for security or regulatory reasons carry less weight than rules that treat you like staff.
Why is the paper only half of the review?
CRA does not stop at the contract. It tests what actually happens, day to day and year by year. A clause that lets you send a substitute carries little weight if the client would never accept one. A clause that says you supply your own equipment means little if you only ever work on a client laptop. The reverse is also true: a contract can carry staff-style wording that does not match how you work.
The CRA guide RC4110, Employee or Self-Employed?, describes this approach. CRA looks at what the parties intended, then checks that against how the relationship really works. So after reading the paper, I ask about the working facts:
- Who decides what you work on each day, and how you do it?
- Who sets your hours, and how is time off handled?
- What does your corporation own and pay for to do the work?
- Have you had other clients, or marketed your corporation, this year?
- Have you ever fixed work at your own cost, or gone unpaid?
- Are you on the client’s org chart with a client email and title?
Where the paper and the facts point in different directions, the facts usually carry more weight.
What do we do with what we find?
We go through the results with you as part of your tax planning. Depending on your facts, that can include:
- Listing the clauses that point toward employment and the facts that weigh the other way.
- Suggesting records that support your position, such as invoices to other clients, receipts for your own equipment and software licences, and your insurance policy.
- Planning your salary and dividend mix with PSB risk in mind, since salary paid to you stays deductible even if CRA treats the income as PSB income.
- Noting clauses you may want to raise with your lawyer and the agency at renewal.
We are accountants, not lawyers. We do not draft or rewrite contract wording, and we do not give legal opinions. Any change in wording is for your lawyer and the agency to agree. Our role is to show you the tax side of each clause, so you can have that conversation with the facts in hand.
PSB status is tested year by year, so when your contract renews or changes, please send us the new version. If CRA does contact you, we already know your contract and facts. Our CRA PSB review page explains how our CRA audit support and representation works in that case.
Who do we do this for?
We work with incorporated IT contractors, such as developers, DevOps, data, cloud, cybersecurity, QA, BA and PM roles, and finance contractors in FP&A, accounting, controllership, risk, audit and compliance. Many bill through an agency to banks, insurers, governments and large enterprises. We work only with incorporated Canadian businesses, not individuals or sole proprietors. If you are in the GTA, see our page for an incorporated contractor accountant in Toronto.
When you book, please have your agency agreement, statement of work and onboarding package ready. Book a consultation and we will go through them as part of your tax planning. You can also call 647-212-9559 or email info@gondaliyacpa.ca. We are open 9AM to 8:30PM, Monday to Sunday.
Frequently asked questions
Is a PSB contract review a separate service?
No. We review your contract and working facts as part of the tax planning work we do for your corporation. It is not sold or priced on its own.
Can a contract review tell me for certain whether my corporation is a PSB?
No. A review shows which clauses and facts point toward employment and which weigh the other way. CRA weighs the whole relationship, year by year, and how it works in practice. A review helps you reduce risk and document your position. It cannot settle the question.
Will you rewrite my contract to reduce PSB risk?
No. We are accountants, not lawyers, and we do not draft contract wording. We explain the tax side of each clause. Any change in wording is for your lawyer and the agency to agree.
Does the hours clause in my contract make my corporation a PSB?
Not on its own. Fixed 35, 37.5 or 40 hour weeks, set schedules and timesheet approval by the end client are control indicators, but hours alone never decide PSB status. CRA looks at all the factors together.
My contract is with the agency. Do the end client’s documents matter?
Yes. In a three-party setup, CRA looks at whether you would reasonably be an employee of the party you really provide the services to. The agency agreement and the end client’s onboarding rules both matter.
Which documents should I bring?
Your agency agreement, every statement of work and renewal, the end client’s onboarding package, and a few recent invoices. If your corporation has other clients, its own equipment or its own insurance, bring proof of those too.
Should I file a CPT1 to get a ruling on my status?
Form CPT1 is used to request a CPP and EI ruling on a worker’s status. It is not a PSB ruling for income tax, although CRA looks at similar facts. If you are thinking about one, we review whether it is useful in your facts.
How often should my contract be reviewed?
PSB status is tested year by year, so the review should follow your contract. When it renews, changes scope or moves you to a new end client, we look at it again as part of your tax planning.