Employee vs Contractor

Question 1

Risk of incorrectly reporting employees as contractors

Answer 1

• if a company is incorrectly reporting employees as contractors the CRA would hold the company liable for 100% CPP and EI premiums and withholding taxes

Question 2

Tests to determine relationship

Answer 2

• Intent (what was the intent of the relationship: contract of service or contract for services)
• Control (who controls the work to be done? If an individual is free to go work anywhere they want then the control is with the worker. If an individual has to get permission to work elsewhere, then the control is with the employer)
• Ownership of tools (who supplies the tools for work? Corporation ownership means employee relationship and induvial ownership means contractor relationship)
• Subcontract work/hire assistant (if able to this would imply contractor relationship)
• Financial Risk (if the worker has a risk than it would imply contractor relationship)
• Responsible for investment and management (if significant investments are not needed to provide services it would imply an employee relationship)
• Opportunity for profit (a wage pay would imply employee and a flat fee would imply contractor)

Question 3

Contractor vs Employee

Answer 3

Employee:
- limited deductions
- income tax withheld at source
- no GST registration required
- paid vacation and Servance
- Tax return due April 30

Contractor:
- more expenses deductible if incurred to earn business income
- quarterly GST installments if threshold mat and register GST if threshold met
- No Servance or job security
- tax return due June 15