Part 2 – Are You an Employed or Self-Employed Canadian?

4 Key CRA Factors to Consider……Continued

15201008_sIn my last blog post, I discussed 4 key factors to help you discern whether you would be considered an ‘Employee’ or ‘Self-employed’ according to CRA standards.  I also covered the first factor, that of “Control”.  This week, I will cover the second and third factors; “Ownership of Tools” and “Chance of profit/Risk of Loss”, factors that you must analyze in your relationship to business or person that pays you.

The following are excerpts from the CRA publication titled “Employee or Self-Employed”? which is no longer available in print or online.

Factor # 2

Ownership of Tools

Analysis of facts related to control Payer Worker N/A
Who supplies the heavy equipment or covers its rental costs?
Who supplies the specialized equipment or covers it rental costs?
Who covers equipment maintenance costs?
Who supplies the large tools or covers their rental costs?
Who supplies the specialized tools or covers their rental costs?
Who supplies the small tools?
Who covers tool maintenance and costs?
Who supplies the materials?
Who has invested in the equipment and tools?

If you answered “Payer” to most of these questions, it means that by supplying the tools and equipment, the payer exercises control over the worker.  There is no risk of loss for the worker.  An employer-employee relationship probably exists.  Otherwise, it indicates that a business relationship may exist.

Factor # 3

Chance of profit/Risk of Loss

Analysis of facts related to control Payer Worker N/A
Who covers the cost of damage to equipment or materials?
Who covers the cost of liability insurance?
Who covers office expenses?
Who covers rental costs?
Who covers shipping and delivery costs?
Who covers costs related to bad debts?
Who assumes responsibility for ensuring that guarantees relation to materials are honoured?
Who assumes responsibility for the performance of the work?
Who guarantees the quality of the work?
Who covers the costs incurred by the worker in carrying out the work?
Who covers the costs of the worker’s benefits (paid vacation, sick leave, life insurance premiums, etc.)?

If you answered “Payer” to most of these questions, it means that there is little involvement on the part of the worker, and that his/her income does not depend on the results achieved at the end of the contract.  An employer-employee relation probably exists.  Otherwise, it indicates that a business relationship may exist.

A number of years ago I had a tax client that believed he was self-employed, working for a sign company in southern Ontario.  When he received his bi-weekly pay cheque, there were no deductions for Canada Pension, Employment Insurance or Tax.  He wrote off a percentage of his home for his office, vehicle and other costs against his income.  The sign company was audited.  It was determined that he was an employee.  As a result, his expenses were not allowed and he had to pay the tax on his total income for the previous three years.  This resulted in thousands of dollars owing to the CRA.  Don’t get caught up with the idea of reducing your taxable income, or pressured into believing you’re self-employed.  If you have any doubt contact your tax services office, where you can obtain a ruling request form.

As always, I love getting feedback.  Here on my blog, you will get commentluv. This is a plug in that allows you to leave a link back to your own site when you leave a comment.

Until next time,

Maureen

 

1 reply

Trackbacks & Pingbacks

  1. […] Part 2 – Are You an Employed or Self-Employed Canadian? 7 Ways to Incorporate Charitable Giving Into Your Life […]

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *