Contractors

Tax and Accounting for Contractors

For many years, some corporations have considered hiring independent contractors instead of employees. This strategy eliminates the tax liabilities for employers regarding employment insurance (EI) and Canada Pension Plan (CPP). Hiring contractors also enables companies to increase business flexibility, restructure quickly during periods of economic downturn and attract skilled contractors through attractive compensation packages.

Contractors benefit from potential tax advantages as well. Because of lack of payroll deductions and allowable business expenses, a contractor may enjoy a higher after-tax income when compared with an employee. The tax benefit is further increased when the contractor uses a corporation to contract his/her services. If the contractor’s corporation is eligible for the small business deduction, there is a significant tax deferral on income taxed inside the contractor’s corporation. The top personal income tax rate in Alberta is 39%, whereas the tax rate for income eligible for the small business deduction is 14%. Therefore there is a tax deferral of 25% each year for income retained and taxed inside the contractor’s corporation. If the contractor has a low-income earning spouse, including the spouse as a shareholder of the contractor’s corporation would result in further tax savings in addition to the deferral opportunity.

  • Contractor vs. Employee

    What are the risks of contracting services vs. being employed? The Courts and Canada Revenue Agency (CRA) consider several factors in determining whether an individual is a contractor or an employee. Key factors include: the degree of control exercised over business decisions; ownership of tools and equipment; the ability to substitute another person to do the work; whether there is a chance of pr...

    » Read more...

  • Contractors Tax Solutions

    Being an employee An evident solution is to simply cease being a contractor and become an employee. However, an employee would expect an increased compensation to place himself/herself in the same earnings position as an independent contractor. Written contract in place Astute contractor accountants would recommend revisiting the contractor's written agreement and ensuring that its term...

    » Read more...

  • Personal Service Business

    What is a Personal Service Business? The contractor vs. employee assessment rules are also applied to determine the status of Personal Service Business. What is a Personal Service Business? A Personal Service Business is essentially a conduit where an individual has formed a corporation and this corporation is engaged by another business to provide services. The shareholder of a contractor’s ...

    » Read more...