The Consultant Versus The Employee
The questions below outline some of CRA's criteria for trying to discredit someone from qualifying as a legitimate business. It is in the tax department’s financial benefit if you are an employee. Employees pay more income tax than individuals who qualify as businesses.
There is no magic formula, but the more of the points listed below that are in your favour, the surer your claim to be considered an independent contractor or consultant.
1. Do you have a written business plan?
2. Who tells whom what to do (who is the master)?
3. Who provides the tools of the trade?
4. Do you have more than one source of income (preferably more than 2)?
5. At whose office do you work?
6. Are you required to keep your own office?
7. Do you have letterhead and business cards?
8. Are you actively soliciting business? Is the person a GST registrant?
9. Is the contract "of service" or "for service?" ‘For service’ leans more towards contractor or consultant.
10. Is the job an integral part of the business, or an accessory? Integral leans to being an employee, E.G. a receptionist for an accountant would normally be considered an employee.
11. Who sets the hours of service? This is one of the most important points to cover in your contract. Make sure that in your contract it says, “The contractor reserves the right to set their own hours.” It does not matter that the employer has regular hours that they expect you to be there, so long as it is your decision as to whether or not you observe their hours. You can start earlier and finish latter, so long as it is clearly outlined in your contract for services.
I can not stress enough the importance of paperwork in dealing with any government body. You absolutely have to have contracts and business plans in place. With paper to prove that you are what you say, you have a very strong argument with the tax department that you are a legitimate business. Remember that they don’t want to go to court any more than you do. The courts of the land have the final say in what is your tax reality. So be a good business and have the necessary documentation to prove you are legitimate.
Remember the next time that an accountant tells you that in a tax court you are guilty until proven innocent. Tell them to check your rights as listed by CRA. An attitude by the tax department otherwise can be challenged.
The truth of the matter is you are innocent until proven otherwise, regardless of the attitude of those who are dealing with you. This attitude of guilty until proven innocent is part of the fear mongering that abounds for the sake of power by tax people. I am not saying they can’t give you a hard time, just don’t buy into that myth that they are omnipotent. Your rights are to take it to court. The tax department is not dying to go to court; they would rather avoid it, if at all possible. So, remember the threat of court can be your strength, in a dispute with the tax department.
About the Author
Dan White is a professional speaker, writer, and business consultant, with extensive business and tax experience.
He has held senior positions in a number of significant companies, and is involved in an advisory capacity to education in Ontario. He is the founder and president of WNBC, a world-leading business networking and consulting company.
For over fifteen years, he has been actively involved in teaching people how to avoid paying thousands of dollars in unnecessary taxes, by taking legal business positions in respect to taxes.
Dan is a frequent guest on radio and TV. He is written about and quoted frequently in various publications across the country. He was the co-producer and host of the TV show "Time for Business" a talk show about business issues. You can learn more about Dan White and WNBC by visiting, http://www.danwhite.ca/site/ and www.wnbc.net.
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