Proposed changes to the taxation of Personal Service Businesses (PSB) by the Federal Government may affect contract operators and those hiring them in oil and gas industries. These changes will have a significant impact on any contract service being provided that was deemed to be a PSB after October 31st 2011, presenting traps and opportunities for contract oilfield operators.
Income from a PSB would be subject to general corporate income tax rates ranging from 8 to 19% higher (depending on the province) than the small business rates they were used to paying. Plus in addition to the 13% increase in the corporate rate in Alberta, contractors would still be liable for personal tax on any salaries or dividends paid out by their PSB Corporation.
If you work as a contractor in the industry or hire contractors, these new PSB rules if enacted will impact you. If you want to be ahead of the curve, contact an experienced tax advisor who can help you understand these new rules and develop a tax plan that suits your needs.
On the opportunities side, many contract workers don’t have adequate coverage for life, disability, critical illness, long term care or health and dental plans. There are some interesting new ways now to get coverage.
- There are now life insurance plans that combine life, disability and critical illness in one policy, providing a pool of insurance funds that can pay out for any covered eventuality. Any claim for disability or critical illness reduces the pool that would be available for payout on premature death. These plans can be personally or corporately owned. Another benefit is that either the disability or critical illness coverage can morph to long term care coverage if needed.
- There are many different stand alone disability and critical illness plans that can be tailored to a specific need, such as covering business overhead costs for contract employees. Disability plans are income replacement plans that keep tax free funds coming in if unable to work due to accident or sickness. Critical illness plans provide a tax free lump sum on diagnosis of any of the multiple covered conditions, to be spent as best needed.
- Another option is to set up a health spending account. This effectively allows your corporation to reimburse you for any personal medical and dental costs tax free to you and deductible to the corporation as a payroll expense.
- An efficient way to set up tax free savings accounts or RRSP contributions is with an at source payroll plan. There is no tax break for TFSA contributions, but any at source RRSP contributions reduce your net taxable income for an instant tax break. Setting these up into segregated funds where family members can be named as beneficiaries, can potentially provide creditor protection for the funds.
As spring breakup approaches, it may be a good time to check out if the proposed new PSB rules will impact you. With the ever increasing costs of doing business and debt loads it’s never been more important to have adequate life, disability, critical illness, long term care and health and dental coverage. Take the time for a review with a qualified life insurance professional to protect you and your loved ones from financial ruin due to your premature death, sickness or disability.
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