Will my corporation be treated as a personal services business?
It depends on whether the company is, in substance, an incorporated employee. The factors are the familiar employment-status ones, namely control over what is done and how, integration into the client's operation, and who carries the business risk, applied to the corporate arrangement rather than to a person. Interposing a company does not answer the question; it only changes who the rules apply to. So the test is run on how the work is actually carried on for the engager, and the answer follows from that rather than from the incorporation.
Why are my company's expenses being disallowed?
Because that is what the rules do to a company found to be an incorporated employee. Where the arrangement falls within them, the income is taxed punitively and most of the ordinary business deductions are denied, which is the opposite of the outcome people incorporate for. The point worth grasping is that the disallowance is not a challenge to whether a particular expense was reasonable; it follows from the characterisation of the company itself. So the argument to have is about the arrangement and the factors behind it, not about the individual items.
Is incorporating better than being on payroll for one client?
Not necessarily, and where these rules apply it is the more expensive option. A company providing one person's services to a single engager who directs the work can end up taxed at a punitive rate with most of its deductions denied, so the structure costs more than the salary it was meant to improve on. The comparison worth making is between employment terms and a corporate arrangement tested against the control, integration and risk factors, not between employment and an assumed corporate outcome the rules may never allow.
What makes a one-person company an incorporated employee?
The same things that make an individual an employee, looked at through the company. Who decides what work is done and how it is done, whether the person is embedded in the engager's operation or runs a business of their own, who bears the risk of a poor outcome, whose tools and premises are used, and whether anyone else could perform the contract. None of these is decisive alone; they are weighed together. A company whose answers all point at the engager is the case these rules were written for.
Would taking on a second client fix the problem?
Only if it changes the factors the test turns on. More engagers can be evidence that a real business is being carried on, which is why the question gets asked, but a second engager whose work is directed in exactly the same way as the first adds little. What matters is the substance: whether the company sets how the work is done, carries genuine risk, and is not simply embedded in one operation. Treat additional clients as one piece of evidence about that, not as a step that settles the characterisation.
Should we engage someone through their own corporation instead?
It does not make the classification question go away, and it is worth knowing what it does instead. The same control, integration and risk factors are applied to the corporate arrangement, and where the company amounts to an incorporated employee the punitive treatment and the loss of deductions land on that company. So the arrangement should be tested on its facts before it is put in place, and both sides should understand which of them carries which consequence if it is characterised differently from the way it was described.
I work remotely from another country for a company back home — who taxes me?
Usually the country you are physically in, because employment income is generally sourced where the work is done, with your residence country taxing it as well if you are resident there and giving credit. Three things follow: your employer may acquire withholding and social security obligations where you sit, a treaty tie-breaker may be needed if both countries call you resident, and a short trip that becomes a long stay can cross a residence threshold nobody was watching. See remote workers and digital nomads.
I have not filed for several years while living abroad — what are my options?
Both countries have routes back, and using one before they contact you is what preserves the relief. On the US side there are procedures aimed at taxpayers whose failure was not wilful, including one designed for people living outside the country, and separate procedures for late account reports and information returns alone. Canada has its voluntary disclosures programme and taxpayer relief for penalties and interest. Filing quietly and hoping is the one approach with no protection attached to it. See catch-up filing.
