Re: Self Employed Status in Canada (long)

[Suzette Seveny <sseveny -at- PETVALU -dot- COM>]

Quite a few people have been sending me notes asking me questions about
self-employed status in Canada.  Here is an official opinion from one of the
best tax advisors in Canada:

There is no single factor that determines self-employed status, it is more a
balance of facts. If a company or agency hires you on your word alone that you
are self-employed, they run the risk of incurring penalties if they are
audited, Therefore, they will usually ask for proof of your status. Revenue
Canada will make a determination of your status based on a preponderance of the
facts.  One thing they will examine is the amount of time spent working for one
company.  If you work for the same company, full time hours, with no other
clients, for greater than 90% of the year, you MAY be deemed to be an employee,
depending on the weight of the other facts.

Generally, a written contact between a company and a contractor is required,
specifying a set period of time or deliverable for a project.

If you really are self-employed, you should at least have a GST number.  This
is required if you are billing over $30,000 per year.  If you do not have a GST
number, you are courting disaster.  The government will require you to pay the
GST, and if you have not included in on your invoices, you will have to pay it
(7 percent) yourself.  You cannot retroactively bill somebody for GST.
 Obtaining a GST number is free.

As a self-employed person, you are also required to pay your taxes directly to
Revenue Canada, along with your CPP payments.  If you want to belong to UI
(Unemployment Insurance) which by the way is now EI (Employment Insurance), you
will have to remit BOTH the employer's portion and the employee's portion of
the contributions.

There seems to be a reluctance to incorporate, although I don't know why.
 Incorporation in the Province of Ontario costs $200.00.  This allows you to
pay a lower rate of taxes (business vs. personal), to participate in tax
splitting strategies and tax planning, as well as being able to legitimately
write off what might otherwise be questionable expenses.

Self-employed status in Canada is still a sticky situation.  Every day there's
a new case in law concerning self-employment.  The bottom line is this - if you
want Revenue Canada to take your self-employed status seriously, you need to
take it seriously as well.  At the very least - get a GST number.

I previously stated that with a GST number, an agency should be able to hire
you on a self-employed basis.  I did this for many years, without question from
Revenue Canada.  The other factors in my favour though, were that I maintained
a home office, kept a formal contract with clients, and maintained a fairly
good (though not obsessive) level of records.  I never incorporated though, and
I realize I paid more tax because of this.  If I were to return to contracting
(which is a distinct possibility after the kind of week I've had), I will
definitely incorporate.

Hope some of this helps.

Suzette Seveny
Markham, Ontario, Canada
sseveny -at- petvalu -dot- com or suzette -at- yesic -dot- com
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