Watts Advisors Accounting & Tax Blog

February 10, 2012 0 comments

Employee vs. Contractor

Employment Income vs. Business Income

One question that I often get from clients is related to whether individuals are considered employed or self-employed.  This determination has a significant impact on taxable income, the ability to deduct certain expenses, and the requirement to make payroll remittances such as CPP and EI. Regardless of how you see your employment relationship the Canadian Revenue Agency (CRA) will make its own determination on your status based upon certain criteria.

The first step is the intent of the relationship was the intent a contract of service (employer-employee relationship) or was the intent a contract of services (business relationship).  Keep in mind there has to be more than intent; the relationship must in fact be how it was intended.  A series of factors are considered in making this determination:

  • The level of control the “employer” has over the “employee’s” activities
  • Who provides the tools and equipment
  • Can the “Employee” subcontract the work or hire assistants
  • Does the “Employee” carry a degree of financial risk
  • The “Employee’s” opportunity for profit
  • Requirement of “Employee” to make investment or manage their business
  • Any other relevant factors such as written contracts or invoices

The CRA will not look at any one of these criteria but rather look at the facts of the working relationship as a whole to determine the employment status.

There can be some significant consequences if a treatment of a relationship is reversed by the CRA.  For example if a relationship that has been treated as a contractor/business relationship is determined to be an employer/employee relationship the employer will be on the hook for payroll remittances in arrears and may have to pay interest and penalties on these amounts.

If you have any questions related to these relationships or if you need assistance with any tax or accounting needs please contact us at steve@wattsca.ca , 604 510-0156, or visit our website at https://wattsca.ca



Disclaimer: The information in the blog is for general information only and is not intended to be a substitute for professional advice.  Each person’s situation is unique, and a designated professional accountant can assist you in using the information on this blog to your best advantage.  The author of this blog strives, but does not guarantee, to provide information which is current and accurate.  Due to the nature of the information, it should not be relied upon for decision making without talking to a designated professional accountant.  By obtaining information from this blog, you fully release Steve Watts, Chartered Accountant of any liability that may arise from using this information.

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