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7 signs the CRA looks for to tell if you’re self-employed
9/22/2017 7:45:51 AM
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By Knowledge Bureau  | Tuesday, September 12, 2017


 

TAX PLANNING FROM THE KNOWLEDGE BUREAU



By Evelyn Jacks

About 32% of workers are starting their own businesses on the side for a variety of reasons – including 25% of those who earn more than $75,000 and 19% of those with income over $100,000. For tax purposes, it’s critical to know the difference between someone who is employed and someone who is considered self-employed.

The research conducted in the U.S. by CareerBuilder.com also confirms that self-employment is embraced more frequently by women and by those in the leisure/hospitality, transportation, and health care sectors. The statistics are similar in Canada.

According to Finance Canada’s most controversial proposals on the taxation of Canadian controlled private corporations (CCPCs), released on July 18, 2017, the proportion of incorporated self-employed individuals almost doubled between 2000 and 2016. “CCPCs now account for more than twice the share of taxable active business income (relative to GDP) that they did in the early 2000s.”

Tax and financial advisors are often called upon in the final months of the year to help taxpayers who are creating their own side-gigs decide whether they are in fact self-employed or simply in an employee relationship in different circumstances.

The Canada Revenue Agency provides guidelines in its Publication 4110. There are seven factors to consider:

1. Equity: Responsibility for investment and management of resources.

2. Control: The right of the payor to exercise control over the activities of the work and influence over workers, especially related to outcomes and methodology. Who has the final word?

3. Assets: Who has the responsibilities and contractual control over the tools and equipment used in the business?

4. Human resources – ability to hire and subcontract human resources: Who does this and pays for the expenses, and has control over hiring and firing?

5. Financial risk: Who is responsible when contractual obligations are not completed or met? Who is reimbursed for expenses and fixed costs? In this case, the payer is the self-employed person.

6. Opportunity for profit: Control over revenues, expenses, and realization of profits.

7. Written contracts: The nature of the individual contracts, and who pays source deductions is considered.

At year-end, numerous tax planning considerations come into play for both employers and employees. In this era, in which one taxpayer may dabble in each profile, understanding the rights and obligations of each is more important than ever. Consult a qualified tax advisor, such as a DFA-Tax Services Specialist, before year-end to be sure of your status.

Evelyn Jacks is the founder and President of Knowledge Bureau. This article originally appeared in the Knowledge Bureau Report, © 2017 The Knowledge Bureau, Inc. Reprinted with permission. All rights reserved. Follow Evelyn Jacks on Twitter @EvelynJacks. Visit her blog at www.evelynjacks.com.

Her latest book, Family Tax Essentials, is now available.

Notes and Disclaimer

©2017 by Fund Library. All rights reserved.

The foregoing is for general information purposes only and is the opinion of the writer. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.

 
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