Subcontractor Vs Employee Ontario

Work performed by employees to their employers is not subject to Harmonized Value Added Tax (HST). Contractors charge HST for their services. Entrepreneurs should consult with their tax advisors about the HST, “pre-tax credits” and what needs to be transferred to the government. In 2016, the Ontario Court of Appeal identified five (5) additional considerations that establish an employer-employee relationship in Keenan v. Canac Kitchens, 2016 ONCA 79, namely: When determining whether a particular employee is an employee or an independent contractor, the courts consider the employee`s entire relationship with the employer. In other words, if the relationship resembles an employment relationship in which working conditions are controlled by the employer and the employee is economically dependent on the employer, the employee is likely to be considered an employee. Independent contractors (often referred to as subcontractors, freelancers, or consultants) operate as independent contractors. You become your service provider and you become your customer. They offer specific services to support your business and are free to have other customers as well as a flexible schedule and workplace.

If you`re starting a small business in Canada, hiring a subcontractor can make a lot of sense compared to an employee. When choosing a subcontractor, take the time to understand your company`s legal and tax obligations. Not knowing is not a credible reason for non-compliance with Canadian laws. Full-time employees typically work exclusively for a single employer and often have access to benefits (such as health insurance or a pension plan) offered by their employer. An employee typically uses the employer`s tools, office, or workspaces and resources to do the work they do for the employer. An employee reports to his or her employer, and the employee`s performance can be evaluated by the employer. Whether there is an employer-employee relationship or a business relationship, the employee must do the job. It can be part-time or full-time for a fixed or indefinite period.

Because of the different tax implications for subcontractors and employees, the CRA is careful to distinguish them and you need to be too. Your company must report all payments made to the subcontractor on a T4A receipt. Because there are so many factors to consider when drafting contracts with subcontractors, it is important that the relationship between your company and a subcontractor is clearly documented in a written contract. Dependent contractors are usually treated as “self-employed” (non-employees) for income tax purposes. If a person is in fact an employee and their employment relationship is terminated by the employer without giving reasons, courts and tribunals will generally grant that employee reasonable notice (or payment instead of reasonable notice) plus legal fees. The main question here is who is running the ship. An employer reserves the right to hire or fire an employee, determine the wages or salary they receive, and decide when, where and how the work is done. According to the CRA: For the subcontractor, the main benefit would be the possibility of tax deductions that are not available to employees.

A self-employed person can deduct all reasonable operating expenses. To be considered reasonable, the purchase must be tailored to the business and used to make money. It`s best to check with an accountant whether a business expense you want to claim as a deduction is considered “reasonable” or not. It`s not always easy to tell if someone is an employee or an independent contractor. Determination cannot be made by a single, universal test. Instead, it is necessary to examine the “overall relationship” between the parties and to ask whether the person responsible for providing the services actually performs them in the context of their own business. A central issue is the degree of control that the receiving party has over the activities of the other party. This factor makes it possible to distinguish the employer-employee relationship from a business relationship.

You are a contractor if you have the opportunity to make a profit and run the risk of incurring losses due to bad debts, damage to equipment, materials or delays. You are not an employee if you bear the operating costs. The main case in Canada for the distinction between employees and independent contractors is McCormick v. Fasken Martineau DuMoulin LLP, 2014 SCC 39 (“McCormick”). In McCormick, the Supreme Court of Canada identified two key considerations: (1) the extent to which the employer controls the employee`s working conditions and (2) the extent to which the employee is economically dependent on the employer. The Court described the relationship between these considerations as “synergistic” or mutually reinforcing. The biggest tax benefit for an independent contractor is the possibility of tax deductions that are not available to employees. As a general rule, a self-employed person can deduct all reasonable operating expenses.

Discuss the issue with your accountant or contact the Canada Revenue Agency if you have taken action but still do not know if you are actually an employee or an independent contractor. We ask the worker and the payer what their intention was when they entered into the employment agreement. Did both parties intend to enter into a service contract (employer-employee relationship) or did they intend to enter into a service contract (business relationship)? Subcontractors can work very well in industries where specific skills are in high demand. These self-employed workers often charge more per hour than an employee, but they are also much less paperwork and responsibility. But while this person may enjoy tax benefits, many benefits are missing, including job security, benefits, responsibility, and stress due to uncertain schedules and uneven cash flow. *This article does not address employers and employees in the context of a unionized workforce. .