Under the Taxation Act, a corporation carries on a personal services business (PSB) in a taxation year if the employee that provides services on behalf of the corporation (the “incorporated employee”) meets the following two conditions:

• They or a person related to them is a specified shareholder of the corporation.
• The employee would reasonably be considered an employee of the person to whom the services were provided, if the corporation did not exist.  

However, a corporation does not carry on a PSB if one of the following conditions is met:

• The corporation employs more than five full-time employees throughout the year.
• The amount received or receivable by the corporation in the year for the services provided is paid or payable by an associated corporation in that year.

For more information, see interpretation bulletin IMP. 135.2-1/R1, Personal services business, on the Publications du Québec website.