Employee vs. self-employed

It may be more advantageous to be an independent contractor rather than an employee, in order to maximize the deductions allowable for self-employment. While you may think you are self-employed, CRA may consider you as an employee. Factors to consider in making this determination:

  • level of control the payer has over the contractor (i.e. a self-employed individual usually works independently within an agreed upon timeframe);
  • whether or not the self-employed provides the tools / equipment;
  • is the self-employed allowed to subcontract the work or hire assistants?
  • financial risk taken by the contractor (i.e. work is performed by self-employed from their own workspace and expenses are incurred to maintain the workspace);
  • responsibility for investment and management (i.e. the self-employed has a capital investment or has established a business presence);
  • opportunity for profit (i.e. the self-employed has the potential to make or lose money on the work performed);
  • written contracts in place.

TIPS & TRAPS

As a self-employed consider incorporating your business. In such case all the above factors are irrelevant. However, CRA may characterize your corporation as a Personal Service Business – this means you would have been considered an employee, had your corporation not existed. A Personal Service Business is not allowed to deduct most of the expenses and is taxed at high corporate rates - this puts you in almost the same tax position, had your business never been incorporated.

Your trusted Chartered Accountant provides tax, assurance services and accounting engagements to clients located in Calgary and area.