Personal Services Business: What Truck Drivers Need to Know — and How We Can Help You Get Out of It

Incorporating can be a sensible step for an independent operator. But if the working arrangement still looks like employment, CRA may treat the corporation as a Personal Services Business — with a much heavier tax bill and fewer deductions.

The short version

A corporation does not automatically make a driver an independent business. CRA looks at the real relationship: who controls the work, whose equipment is being used, how many clients and employees the company has, and whether the driver would otherwise be considered an employee. If the facts point to employment, the corporation may be a PSB.

01 / The relationship matters

What is a Personal Services Business?

A Personal Services Business, or PSB, is a corporation that provides services through an individual who would reasonably be considered an employee of the client if the corporation did not exist. In the trucking industry, this is often discussed as a “Driver Inc” arrangement: the driver incorporates, invoices one carrier, and continues working in much the same way as before.

That label is not the legal test, and incorporation by itself is not the problem. The question is whether the corporation is carrying on a real, independent business or simply standing between the individual driver and a carrier that functions as an employer. CRA can look at the facts of the arrangement rather than accepting the invoice or corporate paperwork at face value.

This is why a driver can be surprised by a PSB assessment. The company may have a corporation number, a business bank account, and regular invoices, yet still be exposed if the day-to-day relationship has the features of employment.

02 / What CRA may examine

The warning signs of PSB reclassification

No single fact automatically decides the issue. CRA looks at the whole relationship, but the following patterns can increase the risk that an incorporated driver is really working as an employee:

01One main carrier. You drive mainly, or exclusively, for one carrier and have little ability to build a client base of your own.
02The carrier’s truck or equipment. The carrier supplies the truck, trailer, tools, fuel card, or other core equipment needed to perform the work.
03Carrier control over the work. The carrier controls routes, dispatch, schedule, loads, procedures, or the details of how the service is performed.
04Fewer than five full-time employees. A corporation with fewer than five full-time employees is within the specific PSB rule’s employee threshold, which can make the income more exposed to the PSB regime.
05You would otherwise be an employee. Looking at the full facts — including control, ownership of tools, financial risk, opportunity for profit, and the relationship between the parties — you would reasonably be considered the carrier’s employee if the corporation were not there.

These factors are not a checklist for a quick self-diagnosis. A driver who owns a truck can still have an employment-like relationship, and a driver with one major client may still operate independently. The contract, the conduct, and the commercial reality all matter.

03 / Why it matters

The tax consequences can be significant

PSB income does not receive the small-business treatment that many incorporated businesses plan around. In broad terms, the corporation cannot claim the small-business deduction on that income, so the income is taxed at a higher corporate rate. A federal additional tax of 5% also applies to PSB income. The result can be a materially higher tax cost before the money ever reaches the driver personally.

Deductions are also very limited. Generally, the corporation can deduct amounts paid as salary or wages to the incorporated employee, along with certain related expenses allowed under the rules. Ordinary trucking costs that a genuine operating business might expect to claim — including fuel, repairs, insurance, and capital cost allowance for equipment — are generally not deductible against PSB income. That mismatch is often the painful part: the corporation still carries the costs, but receives little or no tax relief for them.

The planning impact goes beyond one return. A PSB structure can affect how much cash is available to pay yourself, how payroll is managed, whether instalments are needed, and how you evaluate the economics of continuing under the existing contract. It can also create avoidable interest, penalties, and reassessment risk when the structure has not been reviewed early.

04 / Staying current

The reporting obligations do not disappear

An incorporated driver still has corporate and payroll responsibilities. The corporation generally needs to file a T2 corporate income tax return, even when the tax result is not what was expected. Where the corporation pays the driver for employment services, it may need to prepare the appropriate T4 or T4A slips based on the nature of the payment and relationship. Payroll deductions and remittances also need to be handled correctly, including source deductions and employer obligations where applicable.

These filings are connected. A salary decision affects payroll remittances and slips; the treatment of the income affects the T2; and the books need to support the story the corporation is telling. Missing a filing or treating all payments as simple contractor revenue can compound the problem.

If you are already in a PSB situation, the answer is not to stop filing or ignore the corporation. First get a clear picture of the history, the contracts, the equipment, the payments, and the filings. Then make a plan for both compliance and the future structure.

05 / A way forward

How Balbir.CA can help you get out of a PSB situation

Getting out of a PSB situation is not about adding paperwork to make an employment relationship look independent. It is about understanding the real business and, where appropriate, changing the commercial facts so the company can operate as a genuine business.

We start by reviewing the arrangement: the carrier agreement, who owns and pays for the truck and equipment, how dispatch and routes work, how you are paid, your exposure to costs, and whether you have the freedom to take on other work. We then help identify the most practical path forward, which may include:

A real operating base.Where it makes business sense, owning the truck and meaningful equipment can support genuine independence and financial risk.
More than one client.Building a client mix can show that the corporation is marketing and managing its own business, not simply supplying labour to one carrier.
Business infrastructure.Contracts, insurance, bookkeeping, scheduling, invoicing, and commercial decisions should reflect a company that manages its own work.
Proactive tax planning.We can model salary, cash flow, tax, payroll, and transition decisions before a change creates a new surprise.

For drivers who need a broader reset, our VIP and general corporate restructuring guidance can connect the tax work to the operating decisions: what the company owns, how it contracts, how it pays the driver, and what needs to be documented. After the restructure, ongoing advisory helps you stay compliant as the business changes, including when you add clients, hire people, finance equipment, or change carriers.

The best time to review a PSB risk is before CRA asks questions. But if you are already concerned, you still have a clear first move: gather the agreement and the last year of corporate and payroll records, then get the arrangement assessed on its facts.

Ready for a clearer route?

Let’s look at the structure behind the invoice.

Contact Balbir.CA for a practical review of your arrangement and a plan for what should happen next.

Contact Balbir.CA