by Harold J. Feder of BrazeauSeller LLP

Before anyone’s mind starts to wander, the term “Personal Services Business” is simply a term defined under theIncome Tax Act Canada. Without going into the technical details of the definition, it essentially means a business carried on by a corporation where the services performed by the corporation are provided by an individual who would otherwise be considered an employee of the recipient of the services. The individual in this situation is often referred to as an “incorporated employee”.

In the classic example, an employee of a corporation leaves employment and then starts a corporation to provide services to his or her former employer. The motivation behind this structure is to take advantage of the small business deduction rate for Canadian controlled private corporations and the numerous deductions available to a corporation, as opposed to an employee.

Back nearly thirty (30) years ago, in an effort to curb these arrangements, the Department of Finance enacted legislation to deal with income earned by a personal services business. The effect of the original legislation was to deny the small business deduction as well as the deduction of most ordinary expenses. The result was that the incorporated employee would be taxed at the higher corporate tax rate and would have most expenses disallowed. At the end of the day, this legislation was punitive in that it put the individual in a worse after-tax position than they would have been had they earned the employment income directly.

by Marc Weisman of Torkin Manes LLP

As part of my tax and estates practice, I frequently advise executors on tax and estates matters. The recent decision of the Federal Court of Canada in Rosenberg Estate v. Canada (National Revenue) 2011 DTC 5075 highlights the importance of filing final tax returns on time to avoid penalties to the estate.

This was not a simple estate. Mr. Rosenberg passed away on June 14, 2003 without a Will and therefore without an executor. The court appointed a liquidator (Quebec term for estate trustee) on November 3, 2003. The heirs were in dispute. There was also an undeclared offshore bank account that ultimately resulted in a voluntary disclosure. The liquidator had instructed Mr. Rosenberg’s accountant to prepare and file the terminal return and remit a payment on account of the tax owing. The accountant failed to file the terminal return on time and the liquidator appointed a new accountant. Neither the liquidator nor the accountant had sufficient information to determine the precise amount of tax owing by the filing deadline of the terminal return. Further, the liquidator had to deal with all of the complications of an intestacy and disputes between the heirs.

By Paul Miller of Boughton Law Corporation

[Ed. note: Although a British Columbia case, it evidences how variable are common law entitlements in Canada.]

Employers seeking advice about what notice period or pay in lieu of notice should be given to an employee who is not being dismissed for cause are often told by their legal advisors that there are four main factors to consider: the character of the employment, the length of service, the age of the employee and the availability of similar employment having regard to the experience, training and qualifications of the employee. This article will focus on the first of these factors.

by Gary Adamson of Adamson Advisory

The universal measure of profitability in accounting firms is average income per partner. Another universal tool is the annual Rosenberg National MAP Survey. It’s a must-have for running your firm.

In the latest survey, Rosenberg identifies his “elite” firms, which are the 54 that had income per partner of more than $500,000. Not bad considering it is based on 2009 economic data—from the middle of the recession.

It’s interesting, if you dig into the data in the survey, you will find that these 54 aren’t just the biggest firms, although as Rosenberg puts it, bigger is better in terms of profitability. In fact, 24 of them are in the $2-$10 million fee range and three are sole proprietors.