Income Tax - Employee vs Contractor

Overview:

Employee or contractor, do you understand the difference? What about the tax effects? What are the advantages and disadvantages?

This course focuses on the tax consequences of classifying a worker as an employee versus an independent contractor including applicable CRA guidelines, tax rates, and risk analysis. It covers the CRA test and the tax impact from both a corporate and individual perspective, the taxation of personal service business income, and specific investment business income. The course introduces other legal and operational implications of the employee vs. contractor classification, beyond the Income Tax Act, to enable practitioners to flag these risks. It covers the taxation of unincorporated contractors, incorporated contractors, and employees from both the corporate and individual perspectives, including personal service business (PSB) income and specific investment business income.

Case studies will be used to engage you in the practical considerations involved in classification, and in calculating and applying tax planning principles. Group discussion and work on the case studies will enable you to evaluate the risks, advantages, and disadvantages of hiring employees versus contractors.

The course also introduces the broader implications of workplace classification, to ensure practitioners understand legal and operational impacts that go beyond tax. Practical examples and case discussions will be used to identify potential implications and spot situations when further advice should be obtained. Emerging issues, including “gig” workers and ESG considerations, will also be addressed.

Course Content:

In this course, you will gain knowledge about the following topics:

·         Module 1: Overview of concepts and CRA classification test

o   Key definitions and classification types (employee, independent contractor, PSB, incorporated contractor, unincorporated contractor)

o   Control test and CRA questionnaire

o   Cases and CRA rulings

o   Case study: applying the CRA control test

·         Module 2: Tax implications and tax treatment

o   Taxation rates and considerations from a corporate perspective

o   Taxation rates and considerations from an individual perspective

o   Penalties under the Income Tax Act for misclassification

o   Case Study: tax assessment involving personal service business income

·         Module 3: Implications beyond the Income Tax Act, including employment liability, vicarious liability, and emerging issues relating to gig workers and ESG

o   Legal tests – control and functional integration

o   Workers’ compensation, human rights, employment standards, vicarious liability

o   Dependent contractors

o   Gig workers

o   ESG considerations – social factors and governance

o   Group discussion: identifying employment-related risks

·         Module 4: Practical advice and takeaways: how worker classification arises in practice and how CPAs can best respond

o   Start-ups, growth, small and medium-sized businesses, large corporations

o   When to seek legal advice

o   Mitigating risk

• Group discussion: practical considerations and questions that arise when decision-making

Learning Objectives:

Upon completing this course, you should be able to:

• Describe the CRA test for determining whether an individual is an employee vs. independent contractor
• Explain the tax implications of being an incorporated contractor, unincorporated contractor, or employee
• Describe the consequences of failing to properly classify a worker as employee vs. contractor, including penalties levied under the Income Tax Act
• Assess the tax rates that apply to unincorporated contractors, incorporated contractors and employee from both the corporate and individual perspective, including personal service business (PSB) income and specific investment business income
• Analyze the tax risks, advantages and disadvantages of classification as employee vs. contractor
• Recognize the legal and operational impact of worker classification beyond tax

Who Will Benefit: 

Practitioners working with individual and corporate clients, assisting them with corporate set-up and tax planning.