Are You Independent Contractor or Employee?

Attention Business Owners: You must file your 2014 Self-Employed Income Tax Return by June 15, 2015!  There are only 46 days left, so file now to avoid costly late filing penalties.

TAX TIP         As Independent Contractor, remember that CRA Canada Revenue Agency will usually request a copy of your written contract so be sure it is correctly prepared.  Just one small word makes all the difference!  Employees have ‘contracts of service’ which are subject to the employer’s control.  However, independent contractors work under a ‘contract for services’ allowing freedom within which to operate.  For professional advice on your correct work status, please contact us now.

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Contact us now to arrange your free, no-obligation, strictly confidential FinancialCHECKUP™.  Now more than ever you need to know that you are paying the least amount of tax.

To be an Independent Contractor, you must:

▪         produce a desired result within a set time period

▪         not be under the day-to-day control of the hirer

▪         work in a certain manner

▪         assume the chance of profit and risk of loss

Each situation must be analyzed as a whole; it’s not based on individual factors.

Why Does it Matter to You?

If you are Independent Contractor, you are not subject to payroll deductions for Employment Insurance, income tax or the Canada Pension Plan.  If you are a paying  employer, you need not withhold amounts for vacation or Employer Health Tax.  This is why having independent contractors usually saves money versus having employees.

For income tax purposes, the Independent Contractor can deduct from self-employed earnings a variety of expenses incurred, including travel to and from clients/customers and expenses for maintaining a home office.  By contrast, employees have a much narrower range of deductions available to them.

TAX TIP         Whether one is an employee or independent contractor is also critical for HST purposes because independent contractors must register for HST if fiscal year revenues exceed $30,000 and thus they must charge HST on their services.  However, they also receive refunds on the HST input tax credits they pay on their business expenses.  Please contact us now for details about how you should handle your HST registration and HST recordkeeping.

Dangers of Misclassifying Relationship

If you fail to withhold tax from someone who turns out to be an employee rather than a contractor, you may be subject to interest charges and penalties on late filing and unremitted amounts.  Your company may be liable for Employment Insurance, Canada Pension Plan and Workers Compensation premiums along with related penalties, and the directors are also liable for failure to withhold and remit tax.

As long as there are advantages regarding hiring independent contractors, there will be potential problems and pitfalls in this area.  The best way to avoid these consequences is to seek professional advice.  

June 15, 2015 Deadline

Be sure to file your 2014 Self-Employed Income Tax Return by June 15, 2015 to avoid costly late filing penalties.

We Will Help You

Now more than ever you need our strategic tax consulting, comprehensive business advisory and financial planning services. We also use the most advanced state-of-the-art technology to minimize your income tax liabilities.

To arrange your personal and confidential FinancialCHECKUP™, call now 905-709-HELP or email [email protected]