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IT Consulting Industry Update.pptx

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IT Consulting Industry Update.pptx

In this webinar we discuss the major issues affecting the independent consulting industry including the recent bill 88 and bill 213. We also cover the benefits of incorporation and the biggist issue facing the it consulting industry, Personal Service Business (PSB) risk

In this webinar we discuss the major issues affecting the independent consulting industry including the recent bill 88 and bill 213. We also cover the benefits of incorporation and the biggist issue facing the it consulting industry, Personal Service Business (PSB) risk

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IT Consulting Industry Update.pptx

  1. 1. 1 www.cpa4it.ca @CPA4IT Employee vs contractor How CPA4IT Supports The Industry Benefits of Incorporation Bill 213 Bill 88 •PSC Risk •Q&A
  2. 2. 2 www.cpa4it.ca @CPA4IT Chartered Professional Accountants for Information Technologists ISO 9001 Registered Specializing in Independent Contractors Since 1984 Member of the National Association Of Computer Consulting Business Top 50 Cloud Accountant About CPA4IT
  3. 3. 3 www.cpa4it.ca @CPA4IT 3 To help entrepreneurs organize their finances, create wealth, and transform wealth into a legacy. About CPA4IT • We are curious • We are always learning • We innovate • We are systematic • We communicate • We are inclusive MISSION VALUES
  4. 4. 4 www.cpa4it.ca @CPA4IT • We review pros & cons of each individual’s case to ascertain that, in fact, incorporation is for you. Free initial consultation • in house paralegal firm to incorporate contractor - 48 hour turnaround Turnkey • we provide each client with a graphical benchmarking analysis comparing their results to the average Benchmarking • CPA4IT will handle all negotiations up to the end of the appeal stage without further charge Audit Protection • CPA4IT has been Specializing in independent contractors since 1984 Industry Expertise Top 5 Reasons to Refer CPA4IT
  5. 5. 5 www.cpa4it.ca @CPA4IT 1. They Can Save You Time (and Time Is Money) 2. They Can Recommend Legal Strategies to Save You Money 3. They Know What Is Not Deductible 4. They Know What Is Deductible 5. A Good Accountant Is Like a Truffle Pig, But for Money 6. An Accountant Can Help You Plan for the Future Top 10 Reasons to hire an accountant
  6. 6. 6 www.cpa4it.ca @CPA4IT Significantly Reduce Your Taxes Build A Big Corporate Retirement Fund Get A Tax Free Loan Receive Tax Free Retirement Dividends Smooth Income Protect Personal Assets Additional Tax/Financial Strategies Available Benefits of Incorporating
  7. 7. 7 www.cpa4it.ca @CPA4IT Including your spouse as a director Failing to prepare your initial minutes and corporate minute book. Improperly structuring your corporation Opting for a numbered company Not Hiring a professional Top 5 Mistakes Made When Incorporating
  8. 8. 8 www.cpa4it.ca @CPA4IT I’m on a work permit can I still Incorporate? Now that I have incorporated, what am I required to do? Do I have to have two signatures, e.g. President and Secretary? I have just incorporated, what is an ideal fiscal Year-end? How long does it take to do the Incorporation? Top 5 Questions About Incorporating
  9. 9. 9 www.cpa4it.ca @CPA4IT Ontario Non-Residents can now Incorporate – Bill 213 Amendments As of July 5, 2021 and under the New Legislative Amendment passed in Ontario Bill 213, Corporations that have Incorporated Provincially in Ontario Do Not require to have a Resident Canadian as Director.
  10. 10. 10 www.cpa4it.ca @CPA4IT Jurisdiction Requirements Jurisdiction Director's residency requirements Federal (Canada) At least twenty-five per cent of the directors of a corporation must be resident Canadians. However, if a corporation has less than four directors, at least one director must be a resident Canadian. Alberta No requirement British Columbia No requirement Prince Edward Island No requirement Ontario No requirement Manitoba At least 25% of a corporation's directors must be residents of Canada. If a corporation's board is comprised of three or fewer directors, one of them must be a resident of Canada. New Brunswick No requirement Nova Scotia No requirement Nunavut No requirement Quebec Not in the actual Companies Act and not in the future new Business Corporations Act in Quebec. Saskatchewan At least 25% of the directors of a corporation must be resident Canadians, but if a corporation has fewer than four directors, at least one director must be a resident Canadian. New Founland and Labrador No requirement Northwest territories No requirement Yukon No requirement
  11. 11. 11 www.cpa4it.ca @CPA4IT Gained notariety for the New Minimum Standards for Digital Platform Workers Has a significant impact on the IT Staffing Industry On April 11, 2022, Bill 88 – the Working for Workers Act, 2022 (“the Act”) – became law. It enacts a Digital Platform Workers’ Rights Act, 2022, and makes amendments to the Employment Standards Act, 2000, the Occupational Health and Safety Act, 1990, and the Fair Access to Regulated Professions and Compulsory Trades Act, 2006. Bill 88 – A Significant Impact
  12. 12. 12 www.cpa4it.ca @CPA4IT Subsection 1 (1) of the Employment Standards Act, 2000 is amended by adding the following definitions: “Business consultant” Means an individual who provides advice or services to a business or organization in respect of its performance, including advice or services in respect of the operations, profitability, management, structure, processes, finances, accounting, procurements, human resources, environmental impacts, marketing, risk management, compliance or strategy of the business or organization; (“conseiller commercial”) “Information technology consultant” Means an individual who provides advice or services to a business or organization in respect of its information technology systems, including advice about or services in respect of planning, designing, analyzing, documenting, configuring, developing, testing and installing the business or organization’s information technology systems; (“conseiller en technologie de l’information”) Bill 88 – New Definitions
  13. 13. 13 www.cpa4it.ca @CPA4IT Business and IT consultants (7) For the purposes of paragraph 11.1 of subsection (5), the following are the requirements that must be met: 1. The business consultant or information technology consultant provides services through, i. a corporation of which the consultant is either a director or a shareholder who is a party to a unanimous shareholder agreement, or ii. a sole proprietorship of which the consultant is the sole proprietor, if the services are provided under a business name of the sole proprietorship that is registered under the Business Names Act. 2. There is an agreement for the consultant’s services that sets out when the consultant will be paid and the amount the consultant will be paid, which must be equal to or greater than $60 per hour, excluding bonuses, commissions, expenses and travelling allowances and benefits, or such other amount as may be prescribed, and must be expressed as an hourly rate. 3. The consultant is paid the amount set out in the agreement as required by paragraph. 4. Such other requirements as may be prescribed. Bill 88 – ESA Exemption for Contractors
  14. 14. 14 www.cpa4it.ca @CPA4IT Is the biggest threat facing incorporated IT consultants New Special Project Announced in Feb 22 and running from June – Dec 22 Is CRA looking for PSC’s or any situation where they can prove the contractor is not a true “independent business”? The Current PSB/PSC Climate High Impact Low Risk
  15. 15. 15 www.cpa4it.ca @CPA4IT PSB/PSC Background Pre-Wiebe Door • Few independent contractors – all employees 1986 Wiebe Door Criteria of degree of supervision and control • Ownership of tools • Risk of profit or loss • Integral part of process
  16. 16. 16 www.cpa4it.ca @CPA4IT Act like a business & be treated like one! Control Test What to do vs. how to do it! Ownership of Tools Test Who supplies? Chance of Profit or Loss Risk assumed? Integration Test Integral part of client’s business or an accessory? Detailed written contract Contractor Conduct Business Presence
  17. 17. 17 www.cpa4it.ca @CPA4IT CPA4IT’S Fight Against PSB/PSC Risk Since 1984, CPA4IT has been championing the income tax rights of incorporated independent contractor IT professionals. In the 1980’s, many accounting firms actually turned away incorporated IT professionals as clients, as these accounting firms were themselves afraid of PSC risk. CPA4IT has fought and won all of it’s major PSC cases against the CRA.
  18. 18. 18 www.cpa4it.ca @CPA4IT Ensure you are not a PSB/PSC Have more than 5 employees Provide services only to an associated corporation
  19. 19. 19 www.cpa4it.ca @CPA4IT CPA4IT Strategies to Reduce PSB/PSC Risk Strong, clear and correctly worded written contract Work relationship conduct must support the contract Limit contract length Diversify your client base Implement asset protection strategies Control your work Get liability insurance Build a professional profile Your company's name should reflect your services Hire experienced professionals to represent you PSB Risk
  20. 20. 20 www.cpa4it.ca @CPA4IT CPA4IT PSB/PSC Protection Unique Audit Protection Proprietary 76 page response to CRA PSB/PSC attacks Sample response to the CRA Questionnaire
  21. 21. 21 www.cpa4it.ca @CPA4IT Employee vs. Contractor - GuideRC4110 CRA Guide 4110 Employee Vs. Independent Contractor Control Tools & Equipment Subcontracting work Financial Risk Responsibility for investment Opportunity for Profit
  22. 22. 22 www.cpa4it.ca @CPA4IT Specific to Information technology consultants. Be careful not to put your foot in your mouth. Facts that may be considered neutral: For security reasons and because the nature of the work makes this necessary: The IT consultant must provide their services at the payer’s place of business. Indicators that the worker is an employee Requires that the IT consultant provide services at the payer’s place of business to allow the payer to monitor or provide direction as to how the work is done; https://www.canada.ca/en/revenue-agency/services/tax/canada-pension-plan-cpp- employment-insurance-ei-rulings/cpp-ei-explained/canada-pension-plan-employment- insurance-explained-information-technology-consultants-employees-self-employed- workers.html Secret CPP and EI Information Bulletin
  23. 23. 23 www.cpa4it.ca @CPA4IT Follow up Contact your local CPA4IT representative, or visit www.CPA4IT.ca for more information Phone: 1-800-465-7532 Email: CustomerService@CPA4IT.ca

Editor's Notes

  • Significantly Reduce Your Taxes
    You can significantly reduce your overall income taxes by leaving income in your corporation that will only be taxed at approximately 20%, and avoid the highest personal income tax rates of 40% to 50%.
    Build A Big Corporate Retirement Fund
    Using the low corporate income tax rate of approximately 20%, you can retain income in your company, and use your company as a strategy to accumulate a significant retirement investment portfolio for yourself.
    Get A Tax Free Loan
    You may be eligible to borrow money from your company to buy a home or automobile without having to immediately declare the loan as personal income.
    Receive Tax Free Retirement Dividends
    Upon retirement, or during a sabbatical from working, your spouse and you can receive dividends of approximately $30,000 each from your company, and if you have no other personal income, the total $60,000 of dividend income can be received as personal income tax free.
    Smooth Income
    Should your IT contracting or consulting income fluctuate significantly from one year to the next, you can use your company to smooth out your personal income over two or more years, resulting in lower overall income taxes.
    Protect Personal Assets
    Your company provides you with limited liability from your corporate IT contracting work, resulting in protection of your personal assets.
    Additional Tax/Financial Strategies Available
    Corporations have additional tax and financial planning strategies available for your use such as the creation of individual pension plans, investment holding companies, joint venture companies, etc.
  • Including your spouse as a director
    Including your spouse as a director when it is not necessary, and could create a fiduciary responsibility and unnecessary risk for your spouse.
    Failing to prepare your initial minutes and corporate minute book.
    You are required by law to own and maintain a minute book with record of all transactions that have transpired in your corporation
    Improperly structuring your corporation
    Accepting the default share structure could lose you a lot of tax strategies that would be available to a properly structure company..
    Opting for a numbered company
    Taking a shortcut and opting for a numbered company, when it only takes a few minutes to reserve a name.
  • Incorporation
    How long does it take to do the Incorporation?
    It typically takes 1-2 days for the name search and an additional 2-3 days to file the articles
    of Incorporation. The complete process takes approximately 5 business days.
    Incorporation
    If I'm not incorporated how much of my income do I have to claim?
    Whether you are a sole proprietor, professional or partner, all income that you receive in the
    course of self-employment is considered income from business and must be claimed
    personally.
    Your taxable income from self-employed business includes:
    •Money, credit or an exchange of services (barter)
    • Awards that are received because of your business activities, such as trips, appliances
    (and the like), and
    • Government grants and other financial subsidies, whether from the public or
    private sector.
    Your gross income is determined after deducting the GST/HST (Or other rate if you use the
    Quick Method of accounting for GST) PST allowances and returns.
    Incorporation
    I have just incorporated, what is an ideal fiscal Year-end?
    It is usually a good idea to fit in an entire fiscal year in before doing your year-end. You must
    choose a year-end within 53 weeks (i.e. 371 days) from your date of incorporation. For
    convenience many people choose a month end date. If the company was inactive for a
    while after incorporation, it can be beneficial to have a short year-end.
    Incorporation
    Do I have to have two signatures, e.g. President and Secretary?
    Only one signature is necessary. It is important to remember that you need your articles
    of incorporation to set up a bank account.
    Incorporation
    Now that I have incorporated, what am I required to do?
    These steps are what you should do immediately after you incorporated: •Open up a business
    chequing account •Obtain a business number from Canada Revenue Agency •Fill out an
    initial notice within the prescribed time and file this form with the Ministry
    of Consumer and Commercial Relations

  •  
    Bill 213 Eliminates the requirements that at least 25% of the Directors of an Ontario corporation must be resident Canadians. This means that Non-Residents may Incorporate a company in Ontario without necessarily having a Canadian Resident as Director of the company. 


    This Amendment facilitates foreign businesses and investors in Ontario to register a Company, as well it reduces the time spent and simplifies the administrative work associated to registering a business.

     Although Non-Residents can now easily incorporate in some provinces in Canada, the Corporation may be considered a Non Canadian Controlled Private Corporation (Non CCPC) and will not be eligible for the Small Business Tax Deduction.

    In Ontario a corporation that is a Canadian Controlled Private Corporation (CCPC) only pays 12.2 % on the first $500,000. A non CCPC will not qualify for the small business tax deduction and will pay be subject to the General Corporate Rate which is 38%.

  • Ontario workforce recovery comitted inJuly 2021 the NACCB began a lobing effort to provide a submission to the ontario workforce recocovery advisor  comitted owrac

    Also working on alobbhying effor around WSIB in october wsib released  its proposed policy modificatin the second phase on this closed on  November 16 and we are currently awaiting policy updates
    Moving premium on class l from .13 cents to . 23 cents and this is alligned with the consulting  firms ( which before was different)
    T employment agency licencing regime
    Current whitepaper was just released last night and there was concerned around the 50,000 entry fee and this has been revised down to 25,000

    Nacceb will be provideing additional feedback before december 6th

    Currently have a majority government until 2026 and there is a policy shortage. This is creating a great opportunity for stakeholders to fill the vacuume with policy suggestions for the next 2 years there is an opportunity for the next 2 – 2.5 years

    Must get policy wins and defend thos policy wins  otherwise these policies could all be reversed

    Need ways to ensure the issues are solved and how the knowledge worker industry requires a complete different approach to other segments
  • As of January 1, 2023, business consultants and information technology consultants who meet the criteria stated above will be excluded from the application of the ESA, which means certain minimum standards will not apply to them. 

    Going forward many agencies will not take subcontractor earning less than $60/hour.

    Most Contractors earning $60/hour will receive a financial benefit of incorporating.
  • Personal Service Corporation (PSC) Risk is the greatest CRA threat facing incorporated IT consultants.
    CRA is looking for PSC’s or any situation where they can prove the contractor is not a true “independent business”


    ITA 125 (7) also defines “personal services business” as:

    “personal services business carried on by a corporation in a taxation year means a business of providing services where an individual who performs services on behalf of the corporation (in this definition and paragraph 18(1)(p) referred to as an “incorporated employee”), or any person related to the incorporated employee   is a specified shareholder of the corporation and the incorporated employee would reasonably be regarded as an officer or employee of the person or partnership to whom or to which the services were provided but for the existence of the corporation, unless the corporation employs in the business throughout the year more than five full-time employees, or the amount paid or payable to the corporation in the year for the services is received or receivable by it from a corporation with which it was associated in the year” (emphasis added).

    Between June and December 2022, CRA officials will lead an educational outreach project by contacting Canadian businesses that potentially hire personal service business, to help determine whether or not these companies are fulfilling their tax obligations. Learn more here.

  • CA4IT Provides a Unique Audit Insurance which can protect independent contractors.
    CA4IT has developed a proprietary 76 page response to CRA PSC attacks.
    CA4IT has developed a sample response to the CRA Questionnaire

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