Individuals who are independent contractor vs employee generally have more tax planning options then employees.  Determining of you are an employee or an independent contractor from the Canada Revenue Agency’s point of view, requires the consideration of a number of factors.

Advantages to Being an Independent Contractor/Self Employed

As an independent contractor there are usually a number of advantages. You can recover GST or HST on your expenses if you are registered with CRA to charge GST or HST. Contractors can claim a number of business expenses such as transportation costs to client’s locations, meals and entertainment expenses, and can acquire capital assets for your business that you can be depreciated.  Another advantage is if you maintain a home office as an independent contractor, then various home expenses such as rent if you’re a tenant, mortgage interest, property taxes, utilities, telephone and home insurance can be claimed.  hese expense claims will have to meet the standard tests of home office and the proportion that these are to your entire residence.

The CRA will allow you to deduct the costs of attending two convention s a year of they are in connection with your business or profession.  There are some additional criteria to allow for deductibility around the location of the convention, as it must be hosted at a location that can reasonable be considered within the scope of the host organization. If you are classed as an independent contractor, you are not required or permitted to pay Employment Insurance premiums which will save you additional funds.  Canada Pension Plan contributions for employees are split between the employer and employee.  As an independent consultant, you would be responsible for the entire amount, however can claim the employers share against your taxable income.

Common Determining Factors for Independent Contractor vs Employee

Since there are no clean rules in determining an individuals status, the following are considerations that would suggest the individual is an employee:

• Use of the company’s tools, equipment, supplies, or you have an office on location;
• Must account for your time at the company;
• Work a set number of hours;
• Member of the company’s benefit plan;
• And are told what to do each step.

Considerations that would suggest you are more likely an independent contractor vs employee would include:

• Issue invoices and receive cheques without any deductions;
• Opportunity for profit;
• Provide your own tools and equipment;
• Provide services to more than one client;
• Little supervision over work; or
• Flexible working times.

These various factors should be consider together to determine if you would meet the tests of being an independent contractor vs employee.  The CRA has a questionnaire, Form CPT-1, which your employer and supply the details of your relationship with you and ask for a ruling if you are an employee or not for CPP purposes, which would ultimately mean for income tax purposes as well.