Accountant for IT Contractors With an Ontario Corporation
An accountant for IT contractors looks after the corporation you bill through: T2 returns, bookkeeping, payroll, GST/HST and tax planning. In Ontario, the bigger issue is personal services business (PSB) risk. Income taxed at the 11.2% small business rate can be taxed at 44.5% if CRA treats your corporation as a PSB, and most expenses are denied.
Who do we work with?
We work with IT contractors who bill through their own Ontario corporation. That includes developers, DevOps engineers, data engineers, cloud architects, cybersecurity specialists, QA testers, business analysts and project managers.
Usually, the corporation signs with a staffing agency. The agency places the contractor with a bank, an insurer, a government ministry or a large enterprise. The contract usually runs on 35, 37.5 or 40 hours per week, billed by the hour and renewed when the project continues.
We work with incorporated Canadian businesses only, not individuals or sole proprietors. If you have not incorporated yet, we can help with that first.
What does an accountant for IT contractors do for your corporation?
The core work is what every corporation needs, done with an eye on how IT engagements are set up. We charge a fixed flat fee, so you know the cost before we start.
Corporate tax return (T2)
We prepare and file your T2 each year. We claim the small business deduction where it is available, track capital cost allowance on your equipment, and look at the year’s working facts before we file, not after.
Bookkeeping
We keep your books current: agency payments, HST collected, expenses and shareholder loan activity. If CRA asks how your business runs, your records come first.
Payroll for your salary
If you pay yourself a salary, we set up the payroll account, calculate and file the remittances, and prepare your T4 slip at year-end.
GST/HST filings
Most IT corporations are registered for GST/HST and charge HST to the agency. We prepare and file the returns and reconcile them to your books.
Tax planning, including salary and dividends
We plan how money leaves the corporation, how much stays in, and what that means for your personal tax. We review your contract and working facts as part of tax planning, because PSB risk changes what the right plan looks like.
CRA audit support
If CRA writes to your corporation, we act as its authorized representative. We respond to CRA requests and questionnaires, organize your documents, communicate with the auditor, and review and respond to proposal letters.
Why is PSB risk higher for IT contractors?
Section 125(7) of the Income Tax Act sets out when a corporation carries on a personal services business. Two things must be true. First, the person who does the work (the “incorporated employee”), or a person related to them, is a specified shareholder. That means owning 10% or more of any class of shares, directly or indirectly. Second, that person would reasonably be regarded as an officer or employee of the client if the corporation did not exist.
A one-person IT corporation almost always meets the first part. The second part is where the facts matter.
In a three-party arrangement, CRA asks whether you would reasonably be an employee of the party you really provide the services to. That is often the end client, not the agency. If you are contracting through a staffing agency, both the agency contract and the end client’s onboarding rules count.
There are two exceptions. The first is a corporation that employs more than five full-time employees in the business throughout the year, which means at least six. Whether owners or family members count depends on their real roles, so that needs review. The second is income received from a corporation associated with yours.
For the full rules and what they cost, please read our page on personal services business risk.
What PSB indicators are typical in IT engagements?
CRA’s guide RC4110 “Employee or Self-Employed?” sets out how CRA looks at a working relationship. The main factors come from the Wiebe Door and Sagaz decisions: control, ownership of tools, chance of profit and risk of loss, and integration. In IT work, the same facts come up often:
- Fixed hours, often 37.5 or 40 per week, with timesheets approved by the end client.
- Daily standups and sprint ceremonies run by the client’s scrum master or manager.
- A client laptop, the client’s VPN and a client email address.
- Work assigned through the client’s ticketing system, and client access badges.
- On-call rotations set by the client’s team lead.
None of these decides the result alone. Hours alone never decide PSB status, as we explain on our page about 40 hour contracts. CRA tests the whole relationship, and it looks at each year on its own facts.
How may CRA read common IT engagement facts?
| Common IT engagement fact | How CRA may read it | What we look at |
|---|---|---|
| Fixed 37.5 or 40 hours per week | Control: the client decides when you work | Whether hours are a billing cap or a set schedule |
| Client approves your timesheet | Control: the client supervises your time | Whether approval is a billing check or day-to-day supervision |
| Daily standups and sprint ceremonies run by the client | Control and integration: you work inside the client’s team | Whether you deliver a defined scope or take tasks like any team member |
| Client laptop and VPN | Tools: the client supplies what you need | Whether the rule applies to every vendor, and which tools your corporation pays for |
| Tickets assigned in the client’s system | Control: the client decides what you work on next | Whether the work is a defined deliverable or an open stream of tasks |
| Client access badge and email address | Integration: you look like staff | Whether you are set up as a vendor or as part of the team |
| On-call rotation set by the client | Control: the client sets your availability | Whether on-call work is agreed and priced as part of the contract |
| Paid by the hour with no fixed deliverable | Chance of profit and risk of loss: income tracks hours, like a wage | Whether your corporation carries real cost or risk if the work runs over |
| One client for the whole year | Integration: the work looks like a job | Other clients and work your corporation finds on its own |
Which expenses does an IT corporation normally deduct?
An IT corporation that is not a PSB deducts the normal costs of earning its income, such as:
- Laptop, monitors and other equipment, through capital cost allowance
- Software, cloud accounts and development tools
- A reasonable share of home office costs
- Phone and internet used for the business
- Professional development, such as certification courses and exams
- Accounting fees
How does section 18(1)(p) change this for a PSB?
If your corporation is a PSB, section 18(1)(p) limits its deductions to a short list:
- Salary, wages or other remuneration paid in the year to the incorporated employee
- The cost of benefits or allowances provided to the incorporated employee
- Certain amounts spent selling property or negotiating contracts that an employee could deduct
- Legal expenses to collect amounts owed for the services
Equipment, software, home office, phone, training and accounting fees are all denied.
Here is one full taxation year at the current 11.2% rate. Revenue is $95 an hour x 37.5 hours x 48 weeks = $171,000. Expenses are $9,000. No salary is paid.
- Not a PSB: ($171,000 – $9,000) x 11.2% = $18,144
- PSB: expenses denied, so $171,000 x 44.5% = $76,095
- Extra tax: $57,951
The 11.2% rate applies to income earned from July 1, 2026. Income earned before that date was taxed at 12.2%, and a corporation with a December 31, 2026 year-end gets a blended 11.70%. To test your own numbers, please try our PSB tax cost calculator.
How do salary and dividends fit in?
Salary paid to you is one of the few deductions section 18(1)(p) still allows, so pay planning matters.
Take the same year, with a $120,000 salary paid to you:
- Not a PSB: ($171,000 – $9,000 – $120,000) = $42,000 x 11.2% = $4,704
- PSB: ($171,000 – $120,000) = $51,000 x 44.5% = $22,695
- Extra tax: $17,991
This leaves out employer CPP and the personal tax on the salary. Salary is not a way around the rules, and it has its own personal tax cost.
PSB income does not get the small business deduction, so it is taxed at the full rate and adds to the general rate income pool (GRIP). Dividends paid from it can be designated eligible dividends. Integration still leaves a gap. At top 2026 rates, $100,000 of PSB income costs $44,500 in corporate tax, and the $55,500 eligible dividend costs $21,833.70 in personal tax, for a total of $66,333.70. The same $100,000 paid as salary costs $53,530. The PSB route costs $12,803.70 more.
We cover pay mix in more detail on our page about salary vs dividend for incorporated contractors.
How do we work with IT contractor corporations?
We keep the process plain:
- We review your contract, the agency agreement and how the work runs day to day, as part of tax planning.
- We set up your books, payroll and HST.
- We plan salary and dividends for the year with PSB risk in view.
- We file your T2 and look at the facts again each year, because a new contract or renewal can change the picture.
We are accountants, not lawyers. Contract wording is for your lawyer. We help you document the facts, reduce risk where the facts allow it, and support your position if CRA asks questions. No one can promise how CRA will view a file.
I lead the firm as a CPA (Canada and USA). Our team includes a second designated CPA (CPA Ontario) and bookkeeping support staff. We have 1300+ five-star Google reviews and are a 2026 Xero Awarded Firm.
How do you get started?
Please book a consultation and bring your current contract, the agency agreement and your last T2 if you have one. You can also call 647-212-9559 or email info@gondaliyacpa.ca. We are open 9AM to 8:30PM, Monday to Sunday, at 55 Queen St E, Suite 1205, Toronto.
Frequently asked questions
Do you work with IT contractors who are not incorporated?
No. For these services we work with incorporated Canadian businesses only. We do not take individuals or sole proprietors as clients. If you plan to incorporate, we can help set up the corporation first.
Does a 37.5 hour contract make my corporation a PSB?
Not by itself. Fixed hours are a control indicator, but hours alone never decide PSB status. CRA looks at the whole relationship, including tools, chance of profit and risk of loss, and integration, and it looks at each year on its own facts.
Can my corporation still deduct my laptop if it is a PSB?
No. Section 18(1)(p) limits a PSB’s deductions to salary, wages and benefits for the incorporated employee, certain costs of selling property or negotiating contracts that an employee could deduct, and legal costs to collect amounts owed. Equipment, software, home office, phone and training costs are denied.
Does billing through a staffing agency protect me from the PSB rules?
No. In a three-party arrangement, CRA asks whether you would reasonably be an employee of the party you really provide the services to, which is often the end client. The agency contract and the end client’s onboarding rules both matter.
What tax rate applies to my IT corporation in 2026?
If it is not a PSB, the combined Ontario small business rate on the first $500,000 of active business income is 11.2% from July 1, 2026, and was 12.2% before that date. A December 31, 2026 year-end gets a blended 11.70%. If it is a PSB, the combined rate is 44.5%.
Will you review my contract?
We review your contract and working facts as part of tax planning, looking for PSB indicators. We are accountants, not lawyers, so we do not draft or change contract wording. That is for your lawyer.
What happens if CRA asks questions about my corporation?
We act as your corporation’s authorized representative. We respond to CRA requests and questionnaires, organize your documents, communicate with the auditor, and review and respond to proposal letters. Please contact us as soon as a letter arrives.