Writing A New Chapter In Its History

The independently incorporated contractor is no stranger to Alberta’s oil and gas industry. Many of the industry’s office and field workers operate their own businesses and contract out their services to one or more clients. Until recently, there were several advantages to this arrangement, verses employment, for both the oil and gas companies as well as the contractors. The companies didn’t have the burden of employees and payroll and could hire help on a project-by-project basis. Contractors were also able to access significant tax savings through their corporations.

In 2011, the Income Tax Act was amended in an effort to capture the tax revenue and pension contributions the government was missing out on as result of this arrangement. The changes raised the corporate tax rate to 38% for those contractors deemed by CRA as a Personal Services Corporation (aka Personal Services Business or “PSB”), which they define as, “Business that a corporation carries on to provide services to another entity that an officer or employee of that entity would usually perform.”

This overly broad definition could encompass virtually all contractors in the market. For the purposes of determining who is subject to the new 38% tax rate and who is still eligible for the lower small business rates of 14%, CRA auditors perform a subjective assessment as to whether the contractor “behaves” like an employee.

• Contractor’s level of financial risk
of loss and opportunity to profit
• Contractor’s ability to sub-contract the
contracted labour to another individual

• Ownership of the tools
used for the contracted work
• Level of control over when, where,
and how the contracted work is performed

If the CRA auditor assesses the contractor to be a PSB, then the contractor is at risk of having their income for up to three past filing years subject to re-assessment at the higher 38% rate, plus any applicable penalties and interest. For many, the re-assessment has exceeded 50% of their annual take home over those past years. It is a reality shaking the industry.

Pajak Engineering has been serving the oil and gas market since 1966. Pajak has built a solid reputation for providing qualified contractors to oil and gas companies and supporting their contractors with benefits. In continuing with their tradition of innovation and responsiveness to the marketplace, Pajak has rolled out PajakPlus+ as a solution for those contractors operating as PSBs and facing the resulting taxation.

PajakPlus+ is a compliance and benefits umbrella for contractors. It is an entity to work through, which provides, in addition to Pajak’s continued work placement efforts, the following:

• Health insurance and health spending account
• Professional insurance
• WCB

• Bookkeeping
• Financial consultation
• Income tax withholdings, including GST

Most of all, PajakPlus+ provides an operating environment which removes contractors from the 38% PSB tax risk, provides compliant access to the small business tax environment, and creates the opportunity to income split, defer tax, and enjoy the many other advantages available prior to the 2011 changes.