Hello, and welcome to our questions and answers
webinar on employment status. My name is Maurice,
and I am your presenter. Today’s webinar is
the second in a four-part series on questions
and answers. This webinar will be recorded and
posted on the Canada Revenue Agency (the CRA)
website at a later date. We received a
lot of questions. Unfortunately, some of the questions
didn’t provide enough details or were too broad,
and we were not able to provide an
answer because the variables would have been too
extensive. If you are not certain of your
employment status, you can ask for a ruling.
We also received questions that were not about
determining whether a worker is an employee or
is a self-employed individual. I am not able
to respond to those questions in this webinar.
If you have such questions, please contact the
CRA.
Before answering your questions, let’s quickly review how
the CRA determines employer-employee relationships. Why is it
important to determine whether a worker is an
employee or a self-employed individual? It’s important because
employment status directly affects a person's entitlement to
employment insurance benefits under the Employment Insurance Act.
It can also affect how the worker is
treated under other legislations, such as the Canada
Pension Plan and the Income Tax Act.
Certain factors have to be considered when deciding
if a worker is a self-employed individual or
an employee. These factors differ if a contract
is formed in the province of Quebec or
in another province or territory. Usually, the province
or territory where the contract was formed will
decide which set of factors to use. In
a written contract, the parties may state that
in the event of a disagreement about the
contents of the contract, it is to be
interpreted under the Civil Code of Quebec, even
though the contract was formed, for example, in
Ontario (where common law applies). Depending on where
the contract was formed, unless it is stated
differently in a written contract, we will use
the factors associated with the province or territory
where the contract was formed. For example, the
Civil Code of Quebec if formed in Quebec
and common law if formed elsewhere in Canada.
When we examine whether a person is an
employee or a self-employed individual, the key question
to ask is whether the person is engaged
to carry out services as a person in
business on their own account, or as an
employee. To do this, we examine the total
relationship between the worker and the payer, using
a two-step approach under the principles of common
law: Step 1 – Establish the intention of
the parties when they formed the contract; and
Step 2 – Analyze the working relationship, in
light of the parties’ intent.
The factors the CRA considers to determine the
employment status of a worker are the level
of control the payer has over the worker’s
activities; whether or not the worker provides the
tools and equipment; whether the worker can subcontract
the work or hire assistants; the degree of
financial risk taken by the worker; the degree
of responsibility for investment and management held by
the worker; and the worker’s opportunity for profit
in doing his or her tasks.
In Quebec, when we examine whether an individual
is an employee or self-employed, the key question
to ask is whether the individual is engaged
to carry out services as an individual in
business on their own account, or as an
employee. To do this, we examine the total
relationship between the worker and the payer, using
a three-step approach following the Civil Code of
Quebec. Step 1 – Establish the intention of
the parties when they formed the contract. Step
2 – Confirm if the employment meets the
definition of a contract of employment or of
a contract for services, as defined in the
Civil Code of Quebec, by considering the following
factors: doing the work remuneration relationship of subordination
Step 3 – We compare each party’s intentions
with their working relationship. We determine whether the
conditions of the working relationship represent the status
that the parties choose and that they are
consistent with the definitions of the Civil Code
of Quebec.
Factors to consider under Step 2: Doing the
work – Whether there is an employer-employee relationship
or a business relationship, the worker must do
the work. It can be part-time or full-time
for a specified or an indeterminate period. Remuneration
– It means how a worker is paid.
It includes all consideration and benefits that have
a monitory value. Whether there’s an employer-employee relationship
or a business relationship, the worker must receive
remuneration for the work. The remuneration can be
calculated by time, by piece, or in another
manner. Relationship of subordination – This factor helps
distinguish the employer-employee relationship from a business relationship.
The relationship of subordination is the capacity, the
authority, or the right of a payer to
exercise control over the worker’s activities and how
the work is to be done. Now, let’s
answer your questions.
Can a worker be a self-employed contractor and
an employee at the same time, for example,
work as an employee for one department of
the payer while working as a self-employed contractor
for another department of the payer? Although rare,
it is possible for a worker to have
two separate and distinct contracts with the same
payer, where one contract could be seen as
an employer-employee relationship with the other employment being
considered as self-employed. For this to happen, the
two contracts would have to be independent and
distinguishable from each other, and the terms and
conditions of the working relationships would have to
justify the respective employment statuses. If you feel
that this is a situation that might apply
to you, we would recommend that you ask
for a ruling. You can ask for a
ruling on the CRA website by filling out
Form CPT1, Request for a Ruling as to
the Status of a Worker Under the Canada
Pension Plan and/or the Employment Insurance Act, or
by calling 1-800-959-5525.
We have a part-time employee who is paid
by the hour. This employee generally works less
than 20 hours per week. We have engaged
the services of this employee to do work
on a special project, which is paid at
a higher hourly rate. The employee wants to
be paid as an independent contractor for the
special project. Is this permissible? Although it rarely
happens, it is possible for a worker to
have two separate and distinct contracts with a
payer: one being a contract of service (employer-employee
relationship); and the other a contract for services.
The two contracts would have to be independent
of each other and each employment would have
to meet the terms and conditions of the
employment status under the principles of common law
or the Civil Code of Quebec, whichever applies.
In your example, you mentioned that the worker
wanted to be paid as an independent contractor
and was being paid an hourly rate. Being
paid an hourly rate may indicate an employer-employee
relationship.
If you hire family members for a small
business are they treated as employees? The employment
status of a family member hired by the
small business would be determined the same way
as a non-family member using the criteria under
the common law or the Civil Code of
Quebec, whichever applies. It is important to note
that there is a special legislation within the
Employment Insurance Act that deals with the insurability
of workers who are related to the payer.
For more information on that subject, see the
CPP/EI Explained article entitled: "Not dealing at arm's
length for purposes of the Employment Insurance Act
(EIA).” In the employer’s guide T4001 called Payroll
Deductions and Remittances, Chapter 3 deals with the
employment insurance. Under the heading “Employment, benefits and
other payments from which you do not deduct
EI premiums,” we discuss the situation of not
dealing with each other at arm’s length.
Is there a ruling on freelance interpreters, photographers,
etc. that organizations might use for events they
are holding. Is this considered a business relationship?
There are no existing employment status rulings stating
that all employment in a specific sector or
discipline will be considered as under one employment
status. The terms and conditions of an employment
relationship between a worker and a payer will
determine the worker’s employment status. For example, a
payer could have hired two photographers where one
could be employed under the terms and conditions
indicating an employer-employee relationship, while the other could
be employed under terms and conditions indicating a
self-employed individual.
For the public sector: an individual is appointed
under bylaw to provide services. What is the
employer-employee relationship? The employee can set their own
time when providing the services. However, the employer
mandates the job training. The hiring contract shows
they are responsible for any tax-related deductions, since
they are independent of the municipality. We do
not have enough information to provide you with
an accurate answer. Please see the CPP/EI Explained
articles, including “Tenure of office” on the CRA
website. If you are not certain, you can
ask for a ruling.
When determining if this is a business-to-business or
employee-employer relationship, what is the biggest factor to
consider? It is our position that control is
a major part in determining employment status, but
you have to address all the facts of
the relationship between the worker and the payer.
What types of fines and enforcement exist regarding
businesses not classifying workers correctly? What could be
a possible reprisal? If it is determined that
there is an employer-employee relationship, the employer will
have to pay the CPP contributions and the
EI premiums that should have been deducted from
the employee’s pay, as well as the employer’s
part of these amounts. The CRA can assess
four years back for CPP contributions and three
years back for EI premiums. The employer may
be subject to penalties for failure to remit.
Can an individual who provides services to a
corporation in which they are a minority shareholder
and officer be self-employed by the corporation? It
is possible, but highly unlikely. Most people incorporate
to run their business through the corporation. This
is a situation where you should ask for
a ruling. Paragraph 5(2)(b) of the Employment Insurance
Act states that employment of a person by
a corporation, if the person controls more than
40% of the voting shares, is excluded employment.
Also, paragraph 5(2)(i) states that employment where the
employer and the employee are not dealing with
each other at arm’s length is also excluded
employment. Paragraph 5(3)(b) of the Employment Insurance Act
allows the minister of national revenue to include
employment previously not included under paragraph 5(2)(i), if
the minister is satisfied that the parties would
have entered into a substantially similar contract with
a non-related person.
Does the self-employed person need to have more
than one customer under the Total Relationship Approach
(the TRA)? The fewer clients a person has,
the more dependent they are on that one
particular client. So, if you have only one
client, then you are very dependent on that
client, which could be viewed as indicating an
employer-employee relationship. However, with that being said, under
common law, we have to look at all
the facts regarding the relationship between the payer
and the worker. If other factors support or
indicate self-employment, then the fact that the worker
has one client would not be a determining
factor.
Is it necessary for employers to issue a
T4A slip for self-employed individuals? Is there any
penalty? Yes, a T4A slip should be prepared
when a business hires a contractor. The amount
paid should be shown in box 48 of
the slip. There may be penalties associated with
the late-filing of T4A returns.
There are a lot of factors to be
determined. Can I contact the CRA directly to
get a ruling before entering into a contract
with a worker? If a worker or payer
is not sure of a worker's employment status,
either party can ask for a ruling to
have the status evaluated after the parties have
entered into a contract, since it is based
on the facts of the working relationship. A
ruling indicates whether a worker is an employee
or is self‑employed, and whether that worker's employment
is pensionable and/or insurable. If you have a
payroll program account and are registered on My
Business Account, you can use the "Request a
CPP/EI ruling" service in My Business Account. An
authorized representative for the payer can ask for
a ruling online through Represent a Client. A
payer or a worker can ask for a
ruling by sending a letter or a filled
out Form CPT1 to their tax services office.
You can get this form under “Forms and
publications” on the CRA website or by calling
1-800-959-5525. A worker or an employer can ask
for a ruling before June 30th of the
year following the year to which the question
relates. For example, if the employment took place
in 2016, the ruling request has to be
made before June 30, 2017.
I am a freelance worker and want to
work at an office once or twice a
week with their equipment, doing whatever their needs
are. Does that make me an employee? The
fact that you use their equipment and do
whatever their needs are, would both indicates an
employer-employee relationship. But we do not have enough
facts to give an opinion or a decision.
If you are not sure of your employment
status, you should ask for a ruling.
We received a lot of questions about hiring
a person for a short time (even a
few days). Would they be considered an employee
or self-employed? We issued a T4 slip for
a temporary employee, but that employee now wants
a T4A slip instead. Is this correct? Hiring
for a short time doesn’t necessarily mean that
the worker is self-employed. The duration of the
employment does not indicate the employment status. You
would have to look at all the factors
mentioned earlier or ask for a ruling if
you are not sure. If the worker is
an employee, you were correct to deduct income
tax, CPP contributions and EI premiums and issue
a T4 slip.
What is the status of health professionals who
bill their clients, but pay a practice a
certain percentage of billings for administration and using
their equipment? Although there are not enough facts
to give you an opinion on the health
professional’s employment status, we can offer you the
following comments: The fact that the professional bills
their clients indicates a self-employed. However, because they
pay the practice a certain percentage of billings
for administration and the use of equipment, this
could indicate an employer-employee relationship. If you are
not sure, you should ask for a ruling.
What is a personal service business, a PSB?
A personal service business is a business that
a corporation carries on to provide services to
another entity that an officer or an employee
of that entity would usually perform. Instead, an
individual performs the services on behalf of the
corporation. That individual is called an incorporated employee.
Any income the corporation gets from providing the
services is considered income from a personal services
business, as long as both of the following
conditions are met: The incorporated employee who is
providing the services, or any person related to
him or her, is a specified shareholder of
the corporation. The employee would, if it were
not for the existence of the corporation, reasonably
be considered an officer or employee of the
entity receiving the services. However, if the corporation
employs more than five full-time employees throughout the
year or provides the services to an associated
corporation, the income is not considered to be
from a personal services business.
As a temporary agency we want to make
sure we set up a relationship with our
candidates that have their own business and want
to contract with our clients. I'm interested to
know who should get a T4A slip. It
sounds like the payer is a placement agency,
rather than a temporary personnel agency. We do
not have enough information to give an opinion
on the status of the worker. The legislation
for the Canada Pension Plan and for employment
insurance deals with placement agencies. As such, the
payer may be responsible to deduct and remit
CPP contributions and EI premiums from payments to
workers, even though those workers are not their
employees. Most temporary help firms are service contractors
who provide their employees to clients for assignments.
Workers are usually employees of the temporary personnel
agency. As a result the agency has to
deduct and remit CPP contributions, EI premiums, and
income tax from the amounts paid. They also
have to report these amounts on T4 slips.
For more information, see the article Placement /Employment
Agencies on the CRA website.
I am a sole proprietor working through a
placement agency. This year I received a T4
slip with nothing in box 81. They said
the amount in box 14 was right but
I do not understand how I can have
employment income when I invoice them. Their client
directs me what to do and when to
show up. There isn’t enough information to accurately
address this question. I think you are saying
that you are a self-employed worker covered under
the placement agency provision in subsection 34(1) of
the Canada Pension Plan and paragraph 6(g) of
the Employment Insurance Act. If this is correct,
then the placement agency is deemed to be
the employer under the legislation. Normally, a placement
agency would use box 81 to report income
from the workers they placed, unless they are
considered to be employees of the agency. Box
81 is used to enter the gross earnings
of placement and employment agency workers. If the
agency hired a worker as an employee of
the agency or if the agency paid the
worker and placed them in employment under the
control and direction of its client, box 81
should not be used. You can read the
CPP/EI Explained article Placement/employment agencies. Also, see “Placement
or employment agency workers and code 81” in
Guide RC4120, Employers’ Guide: Filing the T4 Slip
and Summary. You can also contact the CRA
to explain your situation and get the information
you need.
If an owner gets a worker to sign
a letter stating the worker is accepting work
as a casual laborer with no payroll deductions
or vacation pay, is it still an employer-employee
relationship? The worker is taking direction from the
owner's foreman to carry out his duties, and
the worker is working for only this company
and no others. It is the terms and
conditions of the working relationship between the payer
and the worker as viewed under the principles
of common law or the Civil Code of
Quebec that determines the status of a worker.
If a worker is employed under an employer-employee
relationship, signing a letter or contract not to
withhold payroll deductions will not change the fact
that the worker may be an employee and
that the employer is responsible for the CPP
contributions and the EI premiums that were required
to be deducted and remitted, even if these
amounts were not deducted from the employee’s remuneration.
I have a yard service business and I
hire seasonal workers. For snow removal: I have
workers that do snow removal when needed depending
on the snowfall. For spring cleanup: I hire
up to 20 workers that work casual hours.
For summer: Workers are hired to cut lawns
weekly as per a contract. I supply the
workers with the equipment, the vehicle, the instructions
for the type of service required and a
list of addresses. What is the relationship? How
do I report this to the CRA? What
deductions is my company responsible for? It seems
that you have workers engaged in three types
of work. Those engaged during the winter months
doing snow removal, those working during the spring
cleanup and those involved in the weekly lawn
cutting. Duration of employment does not determine employment
status. We do not have enough information to
give you an answer. However, some of the
statements such as “I supply the workers with
equipment, the vehicle and instructions” indicate an employer-employee
relationship. If you are not sure of the
employment status of the workers, you should ask
for a ruling. If the workers are in
fact employees, then you should ask them to
fill out TD1 forms that you will keep
on file. You don’t send these forms to
the CRA. You would be responsible for deducting
income tax, CPP contributions and EI premiums from
the employees’ pay and sending those amounts, along
with your share of the CPP contributions and
EI premiums to the CRA. You would also
need to have a payroll program account number
from the CRA. If you don’t already have
one, see “Opening a payroll program account” on
the CRA’s website. You would have to provide
T4 slips to employees who worked for you
during the year by February 28 of the
following year. To help you calculate the deductions
from the employees’ pay, you can use PDOC,
the Payroll Deductions Online Calculator, on the CRA
website. This calculator gives you the amount of
your share of CPP and EI amounts and
gives you the total of the remittance you
should send to the CRA. It is easy
to use. Or you can use the T4032
Payroll Deductions Tables. Also, the CRA has recorded
webinars on its website, which you can watch
at your convenience to help you with all
the aspects of payroll.
I am the sole shareholder of a corporation.
I receive a monthly wage from the corporation
with CPP contributions and income tax deducted. Would
this be considered an employer-employee relationship? Yes, this
treatment would be consistent with an employer-employee relationship,
and you would be correct in deducting income
tax and CPP only. Paragraph 5(2)(b) of the
Employment Insurance Act excludes the employment of a
person by a corporation if the person controls
more than 40% of the voting shares of
the corporation. It is possible for a shareholder
to also be an employee. If you are
not sure about the employment relationship, please ask
for a ruling, because we do not have
enough information to make that determination.
I work for a massage and spa holistic
company as a receptionist. My employer has given
me a T4A slip instead of a T4
slip. I do not believe I am self-employed.
What should I do? It sounds like you
feel that you are an employee but are
being treated as if you were self-employed. If
in fact you are an employee, your employer
would be required to make the required statutory
deductions at source and report them and your
earnings on a T4 slip. You have the
right as a worker to ask for a
ruling to properly determine your employment status. You
can use the form CPT1 and send it
to your tax services office. You can get
the address on the CRA website at cra.gc.ca/tso.
What are some examples of intent as a
factor of employment that could push the CRA
into interpreting someone to be an employee or
contractor? We ask the worker and the payer
what their intent was when they entered into
the working arrangement. Did the two parties intend
to enter into a contract of service (employer-employee
relationship) or did they intend to enter in
a contract for services (a business-to-business relationship)? Sometimes
the intention is clear and both parties are
in agreement (common intent). Sometimes the two parties
have a different understanding as to the status
of their working relationship, in which case there
is no common intent. Sometimes the intent can
be found in a written agreement, the testimonies
of the parties or by an examination of
the parties’ actions. For more information on intent,
see Guide RC4110, Employee or Self-employed?
If an employer follows most of the factors
set out under a contract of employment, but
also has various contradictions, such as the employee
providing their own tools, or being expected to
pay some expenses for the work done, at
what point does the CRA consider the relationship
tipped in favor of employee or contractor? What
are the thresholds to which employers or employees
can determine their status when there is a
mix of factors that work at either end
of the spectrum? In some situations the employment
status will be quite clear with all factors
clearly indicating one status over the other. However,
in other situations the employment relationship can be
quite complicated, with some factors indicating one status
and other factors indicating another status. Some factors
might not carry as much weight in some
types of employment. For example, within the mechanical
field, it is common practice for employees to
supply their own tools. So this would not
carry as much weight as a worker who
supplies the truck, trailer and backhoe to dig
a foundation within the construction industry. We must
stand back and consider all the factors together
(the total relationship). We must look at a
relationship as a whole to determine whether someone
is an employee or self-employed.
Can you give examples of financial involvement as
a factor, or taking risks with profit or
loss, and describe how these are different? Can
you also give context to Revenu Québec's similar
but alternative phrasing of the rule? Factors within
a working relationship can have an influence on
more than one factor that we analyze when
establishing the employment status of a worker. For
financial risk, we consider the degree of financial
risk taken by the worker. Does the worker
have any fixed ongoing costs or any expenses
that are not reimbursed. For example, did the
worker sign a lease agreement to house the
equipment used to perform their service? This shows
the worker has a financial risk, as the
worker has a financial responsibility to pay the
rental amount on a monthly basis. For opportunity
for profit, we consider whether the worker can
realize a profit or incur a loss, as
this indicates that a worker controls the business
aspect of services rendered. To have a chance
of a profit and a risk of a
loss, a worker has to have potential proceeds
and expenses, and one could be more than
the other. We cannot comment on Revenu Québec’s
policies. You will have to contact them directly.
As an employer, our company recruits volunteers. If
there is money available, we provide a monetary
per diem to these volunteers. Under CRA policy,
would those volunteers be considered employees once money
is provided? You would have to look at
all the factors. But considering they are volunteers
who might receive a per diem, we would
probably treat them as if they were employees.
If I hire someone who used to be
an employee and now I hire her to
do some contract work (hourly or project), what
rules should I pay attention to and how
do I set up the contract/agreement properly from
a tax perspective? What if she doesn't have
a business or a licence, just an individual,
like a graphics artist? You can hire an
ex-employee as a contractor. If it is both
your intentions for this worker to be self-employed,
then you will need to make sure that
the terms of the working relationship are consistent
with that of a self-employed person. To help
you form your working relationship, see Guide RC4110,
Employee or Self-Employed. You should note that paying
someone by the hour usually indicates an employee-employer
relationship. If the worker is self-employed and is
performing services for which GST/HST applies, the worker
should register and get a GST/HST number from
the CRA if their revenues will reach $30,000
in the last 4 consecutive quarters.
If a worker would typically be classified as
an employee, are there any provisions which allow
you to override this and class them as
a self-employed worker instead: for example, because of
the short duration of the contract in question?
It is not the duration of the contract
that is a factor in determining if a
worker is an employee or a contractor. You
will have to look at all the factors.
If you are not sure, you can ask
for a ruling.
What is the CRA view on dependent contractors,
or is it only a status given by
a labour board? We are aware of the
use of the term dependent contracts by some
labour boards. Any questions on this matter should
be directed to the related labour board. However,
it is our understanding that they are not
using this term to define whether the worker
status is that of an employee or whether
the workers’ status is self-employed. They seem to
use this term to refer to self-employed persons
whom they want legislation to apply to, even
though they are not employees. This classification has
no bearing on how the CRA establishes employment
status.
Are the music ministry individuals in a church,
for example, the organist, pianist, or choir director
considered employees or contractors? There is no set
or predetermined status for individuals involved with music
within a church or ministry. Their employment status
will be determined in the same way as
other workers. One must look at all the
factors. If you are not sure, please ask
for a ruling.
Do you consider a retired or terminated employee
who becomes an independent contractor as self-employed or
as an employee? If the retired or terminated
employee is re-employed under the same terms and
conditions, then it would be reasonable to think
that the worker is still an employee. This
would be the case as long as the
worker was correctly identified as an employee in
the first place. The proper approach would be
to analyze the current working relationship to determine
if the current terms and conditions of employment
indicate a self-employed worker. Just because a former
employee was rehired does not mean that the
worker has to be engaged under the same
terms and conditions that were in place when
they last worked for the payer. It is
the facts of the current working relationship that
will determine their employment status.
Should a self-employed person invoice the contracting company
for travel kilometres (at a reasonable rate)? If
so, should they be charging GST/HST on top
of the reasonable rate? It is up to
the parties to determine how they charge, or
if they charge, for kilometres travelled, depending on
the stipulations of the contract between the parties.
GST/HST applies on taxable supplies made in Canada,
calculated at the applicable rate, on the value
of the amount paid or payable for the
supply of a good or service, unless a
specific provision in the Excise Tax Act allows
relief from the tax. The amount includes any
amount payable for a supply under the law.
If the self-employed person includes travel kilometres on
the invoice, then it becomes part of the
amount charged and this amount therefore forms part
of the amount paid for the taxable supply
on which GST/HST is to be calculated.
Company A works part time as a contractor
for Company B every month, but Company A
also has other clients it works for every
so often. Company A doesn't have to be
an employee of Company B, does it? If
Company A (a corporation) mainly provides services to
Company B, but also has other clients, then
this will likely be viewed as a business-to-business
relationship. The worker who represents Company A and
who is performing the services would most likely
be seen as an employee of Company A.
You need to make sure that the contract
is between Company A and Company B and
not between the individual worker (representing Company A)
and Company B. The invoice has to be
issued from Company A and not in the
name of the individual worker. Also, Company B
needs to make sure that the payment is
made to Company A and not to the
individual worker who performed the services on behalf
of Company A. For the purposes of CPP/EI,
the CRA will not pierce the corporate veil.
However, personal services corporations have income tax implications
specific to them.
In what situation would a person, who is
an incorporated entity and who is providing services
to a business, be considered an employee of
this business and not a subcontractor? In situations
where a person has incorporated and provides their
services to the payer through their personal service
corporation (a PSC), the CRA, for purposes of
CPP/EI, will not pierce the corporate veil. However,
if it is evident that the worker is
not providing their services through the PSC, then
the CRA would question the employment status of
the worker. For example, if the worker sends
the invoices in their name rather than invoicing
under the name of the PSC and/or the
payer pays the worker directly rather than paying
the PSC, then it might be reasonable to
conclude that the contract is actually between the
worker and the payer, rather than between the
worker’s PSC and the payer. If the worker
is providing their services through a PSC, it
does not mean that the worker is self-employed.
In these situations, the worker would most likely
be an employee of their PSC. Is the
worker under a contract of service or a
contract for services? To help you determine that,
see Guide RC4110, Employee or Self-employed, or ask
for a ruling.
A person is working for a computer program
company but signs a contract as a field
technician. He is told he is a self-employed
contractor, yet has to work their hours, go
where they send him, and do the work
they give him to do. He gets paid
an hourly wage, but has no deductions taken
from his pay and is not issued a
T4 slip. He gets paid mileage if he
has to travel more than 20 km and
sometimes uses the company's rented vehicles to make
deliveries of computers. Is he self-employed or is
he an employee. Is he required to have
his own workplace insurance and pay double CPP
contributions and both parts of EI premiums as
a self-employed business person? Because of the limited
facts we have, we cannot provide a definitive
opinion. However, some of the facts indicate an
employer-employee relationship. If you are not sure of
the status of your working relationship, you should
ask for a CPP/EI ruling from the CRA.
We cannot comment on workplace insurance. You should
send your enquiry about this to the provincial
authority. If the worker is an employee, then
the payer would have to make the necessary
statutory deductions at source and to report the
earnings and deductions on a T4 slip. If
the worker is self-employed, then the worker would
pay both parts of the CPP contributions. If
the worker is self-employed, the worker may choose
to pay EI premiums to be eligible to
receive EI special benefits. For more information, contact
Service Canada.
Regarding an employee who is related (family) to
the employer: Can the employee get a ruling
on EI, so that the employee could collect
the benefit if needed? What is required? Yes.
An employee who is related to an employer
can ask for a ruling as to whether
that employment is insurable. When the employer and
the employee are related to each other (by
blood, marriage or adoption), they are deemed not
to deal with each other at arm's length
under paragraph 5(2)(i) of the Employment Insurance Act.
However, under paragraph 5(3)(b) of this act, the
employment may be included in insurable employment if
the minister of national revenue is satisfied that,
considering all the circumstances of the employment, it
is reasonable to conclude that the parties would
have entered into a substantially similar employment if
they had been dealing with each other at
arm's length. If it is determined that the
parties are dealing at arm's length, the employment
will be insurable (unless it is non-insurable or
excluded under another provision of the act). To
ask for a ruling, fill out Form CPT1
and send it to your tax services office.
You can find the address at cra.gc.ca/tso.
1. What are the responsibilities of an employer
in determining if a person is self-employed? 2.
Many people claim to be consultants and have
a company. Is this enough proof? How much
effort must an employer go to make the
determination? 3. Why is it the employers’ responsibility
to make the determination? 1. It is important
that a payer make an accurate determination of
a workers employment status to insure compliance with
provincial and territorial and federal legislation for employment.
Proper classification of a workers’ employment status reduces
the risk of future assessments, reassessments, and penalty
and interest charges against an employer as a
result of non-compliance due to an error in
the classification of a workers’ employment status. 2.
It is not enough that workers refer to
themselves as consultants. The employment status of a
worker is established by examining the working relationship
that they have with the payer. It depends
on whether the parties enter into a contract
of service or a contract for services. All
factors must be considered to make a proper
determination. 3. Employers are responsible for payroll deductions
when a worker is an employee. Employers are
responsible for complying with the provincial and federal
legislation for employment. If an employer doesn’t make
the appropriate deductions on a worker’s remuneration, and
it is later determined that the worker is
an employee, the employer could have to pay
both parts of the CPP contributions and EI
premiums, as well as interest and penalties. The
CRA can go back four years to reassess
CPP contributions and three years for EI premiums.
I was recently hired on my first job
and my employer didn’t deduct any federal or
provincial/territorial taxes. What should I do? There are
a couple of reasons why your employer may
not deduct tax from your pay. First, Form
TD1, Personal Tax Credits Return, you completed and
gave to your employer may show that your
total personal deductions will be more than the
basic personal amount shown on line 1 of
the form. Second, your employer may be treating
you as a self-employed individual. We suggest that
you discuss this situation with the payer/employer. If
you are having CPP/QPP contributions and EI premiums
deducted from your remuneration, then the payer is
most likely treating you as an employee. If
you are advised that the reason they are
not deducting any income tax is because they
are treating you as self-employed, you may want
to consider asking for a CPP/EI ruling, to
confirm your correct status.
If ruled that hired workers were employees and
not self-employed, but the workers claimed income and
paid CPP contributions on these self-employed earnings, would
the employer have to pay CPP contributions on
this money as well? The employer is responsible
for sending to the CRA their CPP contribution
on their employees’ remuneration, as well as the
employees’ contributions. When an employee has contributed too
much to the CPP, the exceeding contributions may
be reimbursed, depending on the employee’s tax situation
at the time.
We are a business who hired a consultant
to deliver services. The consultant does not have
a GST/HST number, because the consultant earns less
than $30,000 a year. Can we issue a
payment without a GST/HST number or do we
have to get more information, such as the
consultant's name and social insurance number? You will
have to determine if the consultant would be
considered an employee under a contract of service,
or a self-employed individual under a contract for
services. Look at the factors we talked about
during the presentation. If the consultant is self-employed,
you would have to declare the amount paid
for them on a T4A slip, under code
48. To fill out the T4A slip, you
will need the person’s name, address, and either
a business number or a social insurance number.
Every person who makes a taxable supply in
Canada in the course of a commercial activity
engaged in by the person in Canada has
to be registered for GST/HST purposes, except in
certain circumstances, for example, when the person is
a small supplier. A person is a small
supplier when their total revenues from taxable supplies,
including those of its associates are not more
than $30,000 in the last four consecutive calendar
quarters and in any single calendar quarter. If
the person is a small supplier, they do
not have to be registered for GST/HST and
do not have to charge or collect GST/HST
on the supply of goods or services. However,
a small supplier engaged in a commercial activity
in Canada may choose to register voluntarily. If
the person chooses to register voluntarily, they would
then have to charge GST/HST on any taxable
supplies they make from then onward. So, to
answer your question, if the consultant doesn’t have
a GST/HST number, they cannot charge GST/HST on
the invoice given to clients.
The not-for-profit society that I work for pays
individuals for various purposes, such as teaching dancing
lessons, soccer refereeing, etc. The society issues T4A
slips for the amount paid annually over $500.
Is this the correct minimum amount for a
T4A? The answer to this question really depends
on whether or not the individuals providing the
services are employees or self-employed. If the workers
are self-employed, the CRA’s position is that a
payer does not have to file a T4A
slip for services performed if the total remuneration
in the year was $500 or less and
the payer did not deduct or withhold any
tax from the remuneration. For more information, see
our webpage called What to report and exceptions.
One-person corporation (director and shareholder): 1. Is a
T4 slip (for any amount) enough to make
the employer-employee relationship arm’s length? 2. Can you
complete Form T2200, Declaration of Conditions of Employment,
for yourself? 3. Can health benefits, for example,
payments from a private health services plan or
any other benefit be considered non-taxable? 3a. Can
you deduct medical expenses through your corporation? 4.
What conditions would prevent a separation between employee
and employer? 5. Generally, does the employer-employee relationship
hold when it is a one-person corporation, especially
a personal services business? 1. In these situations,
normally what you have is an individual who
incorporates and runs the services that they provide
through a personal service corporation (a PSC). Normally
the worker is an employee of their own
corporation. If the worker is an employee, for
purposes of the EI we would not be
concerned about whether it is or is not
an arm’s length relationship, because the employment would
not be insurable under paragraph 5(2)(b) of the
Employment Insurance Act, because they control more than
the 40% of the voting shares. In this
example the worker controlled 100% of the voting
shares. For purposes of establishing the employment status
of a worker, whether or not the worker
and the payer are dealing with each other
at arm’s length is not material. However, it
is material as to whether or not that
employment is insurable or not. If the worker
and the payer are not dealing with each
other at arm’s length under paragraph 5(2)(i) of
the Employment Insurance Act and the minister is
not satisfied with regard to paragraph 5(3)(b) of
the act, then that employment will not be
insurable employment. So, no, a T4 slip would
not be enough to change a non-arm’s length
relationship into an arm’s length one. 2. It
is possible for an incorporated employee to claim
eligible employment expenses. However, certain restrictions may apply
depending on the type of services provided by
the corporation. You may want to speak with
an accounting advisor to explore all of your
options. You can also contact the Business Enquiries
line at the CRA. 3. and 3a. We
cannot answer these questions, because they do not
relate to this webinar’s subject. For information on
health and medical benefits, see Guide T4130, Employers’
Guide: Taxable Benefits and Allowances. 4. We do
not have enough information to answer this question.
5. We will not pierce the corporate veil
providing that you are actually operating through the
corporation. For more information, see our answer on
PSCs.
I am in the construction industry and we
hire trade employees from various unions. Employees are
dispatched through the union to various employers throughout
the year. We often received employee requests on
the TD1 forms for tax exemption for not
making more than the basic tax exempt limit.
We know the employees have multi-employers and will
be making over the exempt amount if they
work regularly. In this case, are we liable
to deduct tax for such an employee? Although
I said that I would only respond to
questions about employer-employee relationship, this question seems common
in various industries. So I will answer it.
When an employee has more than one employer,
the TD1 form they provide to the other
employers should indicate $0 at the bottom of
page 1. It should be indicated on page
2 of the forms that the employee has
more than one employer at the same time.
Each employer keeps the completed TD1 form in
the employee’s file. The employer and the employee
don’t need to send this form to the
CRA. The employer will deduct taxes without considering
the basic personal amount. The employer must also
deduct CPP contributions and EI premiums on the
wages paid to the employee. EI premiums must
be paid from the first dollar earned. The
annual maximum insurable and pensionable earnings apply to
each job the employee holds with different employers.
If an employee leaves one employer during the
year to start working with another employer, the
new employer also has to deduct EI premiums
and CPP contributions without taking into account what
the previous employer paid. This is the case
even if the employee has paid the maximum
amounts during the previous employment. It is the
employee’s responsibility to properly fill out Form TD1.
If they do not, they may owe tax
when they file their income tax and benefit
return. So, although you may not have to
deduct income tax, depending on the employee’s situation
and how they filled out their TD1 form,
you are liable to deduct CPP contributions and
EI premiums and send them with your share
of the contributions and premiums to the CRA.
If you want more information about employment relationships,
you can visit our website at cra.gc.ca where
you can find the following publications: Guide RC4110,
Employee or Self-employed? CPP/EI Explained articles If you
need a ruling, you can fill out the
Form CPT1, Request for a Ruling as to
the Status of a Worker Under the Canada
Pension Plan and/or the Employment Insurance Act. You
can also watch our recorded webinars on different
aspects of payroll. They are available on the
CRA website when you click on videos.
This is all the time we have. Thank
you for joining me today. I hope that
the questions and answers we reviewed during this
webinar will be useful to help you meet
your payroll obligations. Please join us for the
next webinar in this series, “Questions and Answers
on the Small Business Deductions” that will be
presented on October 18, 2017. If you have
questions about the small business deductions, you will
be able to send them between August 7
and September the 1st. Thank you for watching.