Professional Services

Consultants, agencies and incorporated contractors sell time and skill, often to a few large clients and sometimes to clients abroad. The tax questions follow from that: whether the corporation is really a business of its own, and when GST/HST applies.

How money moves through a professional services firm

The points where tax and accounting rules come into play are numbered.

Stage 1Win the clientProposal accepted; client location and status confirmed.1
Stage 2Agree the scopeEngagement terms, fees and deliverables set out.2
Stage 3Deliver and track timeHours logged against each client and project.
Stage 4BillInvoices issued with GST/HST where it applies.3
Stage 5CollectReceivables followed up until paid.
Stage 6Pay the team and ownersStaff on payroll; owners take salary or dividends.

Numbered points are explained below.

The three points, explained

At: Win the client

Services to clients outside Canada

Charging HST to a foreign client makes your price higher than it needs to be; not charging it without evidence leaves you owing the tax. Many services supplied to non-resident clients are zero-rated: GST/HST at 0%, with input tax credits still available, provided you keep evidence that the client is a non-resident; some services, such as those to an individual while in Canada, are excluded.

How we help

We check which of your services qualify and what records to keep.

At: Agree the scope

Personal services business

If your corporation is treated as a personal services business, its tax rate rises sharply and most deductions are lost. That can happen when you would be an employee of your client but for your corporation, and the corporation has five or fewer full-time employees; the income then gets neither the small business deduction nor the general rate reduction, and an extra 5% tax applies.

How we help

We look at how you work with each client and flag the risk before year-end.

At: Bill

GST/HST registration

Registering late can leave you owing GST/HST you never charged your clients. You stop being a small supplier when taxable sales pass $30,000 in one calendar quarter or over four consecutive quarters, and from then you must register and charge GST/HST.

How we help

We watch your sales against the threshold and register you when it is reached.

Services that apply

All services

Tax Returns & Planning
Salary and dividend planning, and GST/HST returns, are the core yearly work for an owner-manager.
Bookkeeping & Accounting
Time-based businesses need invoicing, receivables and GST/HST tracked every month.
Cross-Border Tax
Clients or work in the US bring treaty and residence questions.
Fractional CFO
Agencies need utilization, pricing and cash-flow numbers to decide when to hire.
Company Setup
A consultant deciding to incorporate needs the business number, the GST/HST account and a first-year filing calendar set up correctly.

Questions

Still have a question?

I work through my corporation for one client. Is that a problem?

It can be. If the relationship looks like employment without the corporation, the CRA may treat it as a personal services business, with a higher tax rate and limited deductions. The facts of the working relationship decide.

Do I charge HST to a US client?

Often not: many services to non-residents are zero-rated. It depends on the service and on keeping evidence of the client’s non-resident status.