IF YOU USE, OR INTEND TO USE, INDEPENDENT CONTRACTORS – READ THIS
Many employers use “Independent Contractors”(IC) to perform services for the business. This is not necessarily a problem if they are kept clearly at arms length (such as your once a week office cleaners). The problem arises when they work; primarily for you, with tools you supply, when and how you instruct, then these IC’s can be deemed employees by CRA. This can mean the “employee” loses all their deductions and the “employer” would be required to pay back taxes, withholdings etc.
Many insurance brokers have suggested that these people incorporate to protect the employer they work for, but that in itself does not help. In fact, an incorporated business with up to 5 staff can be deemed a Personal Service Business (PSB) resulting in the highest tax rates and reducing the ability to write off most business expense. As a result, this advice is not just potentially damaging, but it can be a difficult spot to “get out of”.
The article below alerts employers to the fact that CRA will be running a campaign in this area…
The Canada Revenue Agency is escalating their scrutiny of personal services businesses, and the consequences for breaching these tax rules can be severe. Find out what you need to know about the CRA’s campaign.