In many industries, it is common practice for a company to hire independent contractors who have incorporated, to perform work related duties.  This is especially true in the oil and gas industry.  Recently, the Canada Revenue Agency (“CRA”) has reassessed many of these corporations and declaring them to be personal services businesses (“PSB”).  As a result, they have lost the small business deduction and cannot claim many of the expenses allowed by other corporations. 

The first case to reach the courts is G & J Muirhead Holdings Ltd. (2014 TCC 49, informal procedure) (“Muirhead”).  The court judge (Boyle, J) indicated in his conclusion that intention of the parties should not be a factor in determining PSB status. 

Case law has established a four-factor test to determine whether a contract is one of service or for the provision of services (Wiebe Door Services Ltd. ([1986] 3 FC 553)).  The four factors most commonly referred to are:

  1. The degree or absence of control, exercised by the alleged employer.

  2. Ownership of tools.

  3. Chance of profit or risk of loss.

  4. Integration of the alleged employees’ work into the alleged employer’s business.

In the Muirhead case, Counsel for the Appellant sought to rely heavily on the intention of the parties, therefore adding a fifth factor.  The judge refused to acknowledge this.  He indicated that a contract between two corporations will always be a contract for services because a corporation can never be an employee.  When the above four factors were taken into consideration, it was determined that there was a contract of service and therefore Muirhead was a PSB.

The Muirhead case can be found at the following link:

 http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/66847/index.do?r=AAAAAQAIbXVpcmhlYWQAAAAAAQ