Staffing Agency Contractor Tax for Incorporated Contractors in Ontario
Staffing agency contractor tax in Ontario works like this: your corporation bills the agency, charges 13% HST, and pays tax at the 11.2% small business rate on its active business income. The agency in the middle does not settle PSB status. CRA looks at who really receives your services, usually the end client. A PSB finding means 44.5%.
Many contractors who bill through an agency never sign anything with the bank, insurer or government department where they sit every day. That middle layer changes the paperwork, the invoicing and the HST. It does not change the question CRA asks about personal services business (PSB) status.
How does staffing agency contractor tax work in a three-party structure?
There are three parties and usually two contracts.
- Your corporation. It provides the services. You are its shareholder, its director and the person who does the work.
- The staffing agency. It holds the supplier agreement with the end client and signs a separate contract with your corporation, often with a statement of work for each assignment.
- The end client. The bank, insurer, government body or large enterprise where the work happens. It usually has no contract with your corporation at all.
Money flows one way: end client to agency, agency to your corporation, and your corporation to you through salary or dividends. Direction of the work often flows the other way. The end client’s managers assign tasks, set priorities and approve your hours. That matters later.
What paperwork will the agency ask for?
Before the first timesheet, most agencies ask your corporation for:
- Proof of incorporation. Your certificate and articles of incorporation.
- Business number. The business number CRA assigned to your corporation.
- HST number. Your GST/HST account number. Many agencies will not pay HST without it.
- Insurance. A certificate of insurance, usually commercial general liability and often professional liability (errors and omissions).
- Banking details. A void cheque or direct deposit form in the corporation’s name, not yours.
Check that the agency contract names your corporation, not you, as the contracting party. Contract wording questions go to your lawyer, and insurance questions go to your broker.
How do invoicing and payment work with an agency?
The usual cycle looks like this:
- You enter your hours in the agency’s or the end client’s timesheet system.
- A manager at the end client approves them.
- Your corporation invoices the agency, or the agency’s portal builds the invoice from the approved hours.
- The agency pays your corporation your hourly rate plus HST, on the payment terms in your contract.
- Your corporation pays you salary or dividends and remits the HST to CRA.
Your invoice should show your corporation’s legal name, HST number, period, hours, rate and HST charged. Here is a two-week invoice at 37.5 hours a week and $95 an hour:
| Invoice line | Amount |
|---|---|
| 75 hours x $95 | $7,125.00 |
| HST at 13% | $926.25 |
| Invoice total | $8,051.25 |
Over a year of 48 weeks, that is $171,000 of fees and $22,230 of HST, or $193,230 deposited. The $22,230 is not your money. It belongs to CRA, less input tax credits on HST your corporation paid on business costs. I suggest moving it to a separate account when it lands.
The agency does not deduct income tax, CPP or EI from payments to your corporation. That is a big difference from T4 employment.
What are the GST/HST basics for an Ontario contractor corporation?
- Rate. For services supplied in Ontario, HST is 13%.
- Small supplier threshold. A corporation is a small supplier while its taxable supplies, including those of associated corporations, are $30,000 or less over four consecutive calendar quarters. Once it goes over, it must register. Going over $30,000 in a single calendar quarter also ends small supplier status, with a faster start date for charging HST. We confirm the exact date with you.
- What that means for you. At $95 an hour and 37.5 hours a week, your corporation bills $3,562.50 a week and passes $30,000 in its ninth week, at $32,062.50. Most agencies want your HST number before the first invoice anyway, so plan to register before you start. We handle the GST/HST registration for your corporation.
- Input tax credits. HST your corporation pays on business purchases, such as a laptop or software, can usually be claimed back. Keep the receipts.
- Filing. The corporation files a GST/HST return for each reporting period.
A PSB finding is an income tax issue. It does not switch off HST on your fees. Your corporation still charges and remits HST either way.
Why does CRA look past the agency to the end client?
Under section 125(7) of the Income Tax Act, your corporation carries on a PSB when two things are true. First, you, the person doing the work (the “incorporated employee”), or a person related to you, own 10% or more of any class of its shares, directly or indirectly. Second, you would reasonably be regarded as an officer or employee of the person receiving the services if your corporation did not exist.
On paper, the agency receives your services. CRA looks at the party the services are really provided to, and in most agency placements that is the end client. So two sets of documents matter: the agency contract, and the end client’s onboarding rules.
The tests come from Wiebe Door Services Ltd. v. M.N.R. and 671122 Ontario Ltd. v. Sagaz Industries Canada Inc. The central question is whose business it is. CRA weighs control, ownership of tools and equipment, chance of profit and risk of loss, and integration into the client’s business. Common agency facts that point toward control include:
- fixed 35, 37.5 or 40 hour weeks with set schedules
- timesheets approved by an end client manager
- onsite or VPN-only access
- a client-supplied laptop, badge and email address
None of these decides the answer alone. CRA tests the whole relationship, year by year. There are two exceptions: the corporation employs more than five full-time employees throughout the year, or the payments come from a corporation associated with yours. Neither usually fits a one-person corporation billing an unrelated agency, and whether owners or family members count needs a review of their real roles. For the full picture, please read our page on PSB risk for incorporated contractors.
What does a PSB finding cost?
The combined Ontario small business rate is 11.2% for income earned from July 1, 2026 (9% federal plus 2.2% Ontario). Income earned before July 1, 2026 was taxed at 12.2%, so a December 31, 2026 year-end gets a blended 11.70%. PSB income is taxed at 44.5%: 33% federal, which includes the additional 5% under section 123.5, plus the 11.5% Ontario general rate. Section 18(1)(p) also denies most expenses, such as software, equipment, phone, insurance and accounting fees.
Here is a full year at 11.2%, with $171,000 of revenue, $9,000 of expenses and no salary:
- Not a PSB: ($171,000 minus $9,000) x 11.2% = $18,144
- PSB: expenses denied, so $171,000 x 44.5% = $76,095
- Extra tax: $57,951 for one year
How does agency contracting compare with T4 employment or a direct contract?
| Point | Incorporated contractor through an agency | T4 employee of the agency | Direct contract with the end client |
|---|---|---|---|
| Who signs with whom | Your corporation signs with the agency, and the agency signs with the end client | You sign an employment contract with the agency | Your corporation signs with the end client |
| Who controls the daily work | Usually the end client’s managers, within the agency contract | Usually the end client’s managers, with the agency as legal employer | The end client, within your contract terms |
| How you are paid | Agency pays your corporation fees plus 13% HST | Agency pays you wages through payroll | End client pays your corporation fees plus 13% HST |
| Tax treatment | Corporate tax at 11.2% if not a PSB, then personal tax on salary or dividends | Agency withholds income tax, CPP and EI, with personal rates up to 53.53% at the top 2026 Ontario rate | Same corporate treatment as the agency route |
| Expenses | Deductible if not a PSB, mostly denied under 18(1)(p) if a PSB | Very limited employment expense deductions | Same as the agency route |
| PSB exposure | Yes, tested against the party really receiving the services | None, because there is no corporation | Yes, tested directly against the end client |
The agency layer does not lower PSB risk on its own. A direct contract does not either. The facts of how you work decide. If you are weighing these options for a new role, please bring the offer to a consultation.
How do we help contractors who work through agencies?
We work only with incorporated Canadian businesses, on a fixed flat-fee model. For agency contractors, that usually means:
- Incorporation. Setting up the corporation so the agency paperwork is ready.
- Bookkeeping and GST/HST filings. Recording agency deposits, separating HST, claiming input tax credits and filing returns.
- Payroll. Setting up your salary, T4 slips and remittances.
- Corporate tax returns (T2). Filed for each taxation year.
- Tax planning. This includes salary vs dividend for incorporated contractors. We review your contract and working facts as part of tax planning, and our page on PSB contract review explains how we read clauses for PSB indicators. We are accountants, not lawyers, so contract wording is for your lawyer.
- CRA audit support and representation. If CRA sends a questionnaire or review letter, we act as the corporation’s authorized representative, organize documents, communicate with the auditor, and review and respond to proposal letters.
IT contractors can read more on our page for an accountant for IT contractors. Finance contractors, such as FP&A, controllership or audit professionals, can read our page for an accountant for finance contractors.
Our firm has 1300+ five-star Google reviews and is a “2026 Xero Awarded Firm”. The team includes a second designated CPA (CPA Ontario) and bookkeeping support staff.
If you are about to sign with an agency, or you already bill one through your corporation, please book a consultation. Please have your agency contract and statement of work ready. 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
Do I need to be incorporated to contract through a staffing agency?
Not always. Many agencies offer a T4 payroll option as well as a contract with your corporation. If you choose the corporate route, the agency will ask for proof of incorporation, your business number and your HST number. Our services are for incorporated businesses, and we can also set up the corporation for you.
Does working through an agency protect my corporation from PSB status?
No. On paper the agency receives your services, but CRA looks at the party the services are really provided to, which is usually the end client. The agency contract and the end client’s onboarding rules both matter. CRA tests the whole relationship, year by year.
Does my corporation have to charge HST to the agency?
Once your corporation is registered, yes. The rate in Ontario is 13%. A corporation must register once its taxable supplies go over $30,000 in a single calendar quarter or over four consecutive calendar quarters. A full-time agency contract passes that quickly, and most agencies ask for your HST number before the first invoice.
Will the agency deduct tax from payments to my corporation?
No. The agency pays your corporation its fees plus HST, with no income tax, CPP or EI taken off. Your corporation is responsible for its own corporate tax, its HST returns and the payroll for any salary it pays you.
What happens to my business expenses if CRA finds a PSB?
Section 18(1)(p) limits deductions to salary, wages and other pay to the incorporated employee, benefits and allowances provided to that person, certain costs of selling property or negotiating contracts that an employee could deduct, and legal costs to collect fees owed. Rent, software, equipment, travel, phone, insurance, accounting fees and similar costs are denied.
Can you review my agency contract for PSB indicators?
We review your contract and working facts as part of tax planning, including how the agency contract and the end client’s onboarding rules read for control, tools and integration. We are accountants, not lawyers. Contract wording changes are for your lawyer.
What corporate tax rate applies to an agency contractor corporation in 2026?
If the corporation is not a PSB, the combined Ontario small business rate is 11.2% from July 1, 2026. Income earned before that date was taxed at 12.2%, so a December 31, 2026 year-end gets a blended 11.70%. If the corporation is a PSB, the combined rate is 44.5%.