Entity Setup
Entity Setup & Case Study: Personal Support Workers Tax Credit in Practice
The new refundable tax credit for personal support workers raises complex questions for employers & workers—here’s how to structure this and document for real-world gain.
By NomadicTax Research Team • 6-7 min read • November 22, 2025
## Introduction
Budget 2025 proposes a **Personal Support Workers (PSW) Tax Credit**, refundable at **5% of eligible earnings**, up to **$1,100 per year**, for tax years 2026 through 2030. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/tm-mf-en.html?utm_source=openai)) This article examines how individuals and employers need to set up entities, maintain documentation, and plan to leverage this credit.
## Who Qualifies & Entity Setup Considerations
### Eligibility Criteria (Workers)
To qualify, a person must be a **personal support worker** whose duties include one-on-one care, assisting with daily living and mobilization under supervision of regulated health professional or provincial/community health organization. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/tm-mf-en.html?utm_source=openai)) Employment income from hospitals, nursing care, residential care, community care, home health care, or similar regulated institutions. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/tm-mf-en.html?utm_source=openai)) Workers in provinces/territories with bilateral wage-increase agreements (e.g. British Columbia, Newfoundland & Labrador, Northwest Territories) are **excluded** from this credit. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/tm-mf-en.html?utm_source=openai))
### Employer / Entity Setup
- Ensure that employer/employment contract clearly lists **eligible duties**, institution classification, and that job matches CRA’s definitions.
- Employers may need to **certify eligible earnings** in prescribed form for employees to claim credit. Keep clear payroll records. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/tm-mf-en.html?utm_source=openai))
- Ensure that employment benefits and taxable income are properly reported—any benefit considered part of **eligible earnings**, including some employment benefits and benefits earned on reserve. ([budget.canada.ca](https://www.budget.canada.ca/2025/report-rapport/tm-mf-en.html?utm_source=openai))
## Real-World Case Study: How Stella, PSW in Alberta, Benefits
**Background:** Stella is a PSW employed at a home health care agency in Alberta (which doesn’t have a bilateral wage agreement with federal government). Her eligible earnings in 2026 are $25,000.
**Credit Calculation:** 5% × $25,000 = **$1,250**, but capped at **$1,100**. So Stella would receive **$1,100 refundable tax credit**.
**Documentation Needed:**
- Employer certification.
- Record of duties and institution type.
- Slips (T4) showing employment income.
- Ensure medical vs caregiving duties match criteria.
If Stella worked in BC or NL, she’d be excluded due to existing bilateral agreement and thus no new credit—so moving between provinces may matter.
## Planning for the Entity (Employer Side)
- Entities should update HR/payroll systems to track eligible earnings separately.
- Ensure employee classification (resident care, home care) is clearly defined.
- Provide employees with forms or documentation needed for their personal tax return.
## Other Examples & Edge Cases
- **Semi-retired PSW** who also has part-time work in another field: only eligible PSW work counts toward this credit. Make sure other employment income is separately reported.
- **Worker on reserve**: eligible earnings on reserve count. Be careful that employer payroll covers those earnings properly.
- **PSW with employer provided lodging/transportation benefits**: some benefits might be taxable and may form part of eligible earnings per CRA’s rules.
## Action Steps for PSWs & Employers
1. Employers: Start classifying and certifying eligible positions in advance of taxation year 2026.
2. Workers: Keep track of pay, duties, slips.
3. Tax preparers: Adjust software to include new credit fields, check for caps & provincial exclusions.
4. Monitor CRA publications for prescribed forms and eligible institution lists.
## Conclusion
The PSW Tax Credit offers a valuable opportunity—but only if eligibility, documentation, and timing are correctly handled. Both workers and their employers need to align practices with the new legislation to capture maximum benefit without risking disqualification.