This is a hot button topic in the industry which has hit the IT and trucking industry most significantly and is not as clear cut.
It matters because being considered as one or the other will have significant tax consequences that impact what business expenses you can claim and the payment of employee payroll tax.
Little weight is given to the written contract between you and the business. The CRA considers the intent of the business relationship and looks at the below factors:
I. Your opportunity of profit and risk of loss to the individual (are you being regularly paid on payroll, do you invoice your work out, is there an ability to hire subcontractors or assistants)
II. Whether you own your own tools and equipment and maintain your own insurance;
III. Level of direction, scrutiny and control the business has over your work, tasks and deadlines;
IV. Level of integration you have with the business and work environment, do you attend departmental meetings, attend company retreats, etc.
The CRA looks at these factors both separately and together in making their decision. Many individuals feel that by billing their work through a company they are automatically considered an Independent Contractor giving them the opportunity to deduct bank charges, meals, vehicle expenses, phone, etc.
However, the CRA has been recently reviewing many corporations and have gone back 5 years disallowing deductions for these types of “Incorporated Employees” creating large tax burdens and penalties more than $50,000.
Ensure you are on the right side of your business affairs and speak with us before you negotiate that new business relationship.
