Improper Classification of Workers

Are you using a corporation to provide personal services? You may be at risk of being reclassified — and facing steep tax consequences.

The 2025 federal budget has introduced new enforcement measures to crack down on misclassification of workers, particularly in industries like trucking and other labor-mobility service sectors. These changes are designed to protect workers and ensure fair contributions to programs like the Canada Pension Plan (CPP) and Employment Insurance (EI).

What Is Improper Classification?

Improper classification happens when individuals use a corporation to provide services but operate in a way that resembles traditional employment. This can trigger Personal Services Business (PSB) rules, which carry serious tax implications:

• No access to the small business deduction

• Corporate tax rates up to 45%

• Limited expense deductions

• Potential penalties and interest on reassessed taxes

Budget 2025: Key Measures

The federal government is taking action to address this issue:

• 💰 $77 million over four years to the CRA starting in 2026–27 to investigate employers who misclassify workers, with a focus on trucking and labor-mobility businesses

• 🔍 CRA and Employment and Social Development Canada (ESDC) will now share information to better identify and address misclassification

• 🧾 Moratorium lifted on reporting fees for services in the trucking industry

These steps signal a more aggressive compliance approach — and a warning to individuals using corporations to mask employment relationships.

Who’s at Risk?

You may be affected if:

• You provide services through a corporation to one main client

• Your working conditions resemble those of an employee (e.g., fixed hours, supervision)

• You lack independence or business risk

Don’t wait for an audit. Let us help you stay compliant and protect your business.