If you are a contractor (especially in the oil patch) Canada Revenue Agency (CRA) may be looking at you closely. If you contract to only one company you are on their hit list. The problem is related to the employee contractor definitions used by CRA. To avoid getting caught in this trap most oil companies will insist their contractors incorporate. This is great for the employer since this absolves them of any responsibility for this issue. The responsibility is now placed squarely on the incorporated contractor.
CRA will look at this incorporated contractor and determine if the corporation is essentially an incorporated employee. If this is the case your corporation will be declared a Personal Services Business (PSB). Once considered a PSB the taxes are horrendous. You will lose deductibility of a lot of expenses and almost all of the advantages of being incorporated. In addition the corporate profits will be taxed at a 38%.
If you are audited and CRA determines your company is a Personal Services Business, it will cost you thousands of dollars. It could easily cost you an additional $6,000 or more per year in taxes. CRA will declare many of the expenses that your corporation deducted as wages to you that will then be taxed. In addition there will be penalties and interest for not paying CRA the source deductions on these expenses that were disallowed.
I have a better solution. You will save some tax and will prevent getting hit by the auditors. In addition there are a number of attractive benefits. You can pay many expenses through this corporation and save money.
You will be paid in the form of wages and a dividend. The dividend can go directly to you or to your corporation. Your corporation will receive the dividend tax free. You can also invest inside the corporation.