
Independent Contractors: A Quick Guide

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For our readers seeking a quick overview of our in-depth article on Independent Contractors: Maximizing Your Business Potential, we have provided this companion post to highlight the basics in a form that is easier to digest.
*Please note this is only a summary and it is highly recommended you read the in-depth version of this article to have a more complete understanding of the material.
Independent Contractor – Pros and Cons
Pros:
You are your own boss
The potential to create your own brand and build a business
Flexibility
Work with multiple clients and projects
Decide how you work
Tax benefits
Cons:
No guaranteed income
Job stability
No traditional benefit plans
Find your own work
Greater investment and upfront cost
Incorporating as an Independent Contractor
Great for building a business
Is often required by clients
Can incorporate as a Canadian Controlled Private Corporation (CCPC) and claim tax benefits
Small Business Deduction (SBD) tax incentive available to qualifying CCPCs
CCPC Relevant Qualifications to Consider:
Great for building a business
Is often required by clients
Small Business Deduction:
Available to independent contractors
Not available to Personal Service Businesses or Incorporated Employees
What is a Personal Services Business?
A Personal Services Business (PSB) is defined under subsection 125(7) of the Income Tax Act as a business where an individual performs services on behalf of the corporation
Also know as an Incorporated Employee
Are you an Independent Contractor or an Incorporated Employee?
Working Conditions and Benefits Commonly Afforded to Employees:
Single client or employer
Designated or shared workspace provided by client or employer
Working hours defined by client or employer
Equipment provided by client or employer
Coverage or reimbursement of expenses by client or employer
Fringe benefits
C.J. McCarty Inc. v. The Queen – Personal Services Business Test:
1. Control Test
Does your client control how and when you must perform your duties?
2. Integration Test
Do you perform your duties independently or are you performing them alongside your client’s employees?
3. Economic Reality Test
Does your client provide you with the tools and equipment to perform your services, or do you?
Can you negotiate the price of your services and can you offer your services to more than one client?
4. Specific Results Test
Are you hired for a specific purpose or project, or are you hired indefinitely?
5. Intention Test
Have you received a contract of services from your client or are you offering a contract to your client?
If you apply the tests to your scenario and find your client has significant control in your operation, you may be considered a PSB by the CRA.
Steps you can take to ensure you are an Independent Contractor
1. Document your work scenario in a contract
2. Use your own equipment
3. Invoice the client for your services
4. Do not accept fringe benefits
5. If you can, provide your services to more than one client or company
6. Establish yourself as a business
Conclusion
*Remember, there is no guarantee as to how the CRA or the courts will judge your status as an Independent Contractor or Incorporated Employee (PSB). But you can still take the necessary steps to best protect your status as an Independent Contractor.
At Amar-VR Law we have advised many clients on this matter and have provided them with business reports tailored to their specific scenarios. Though we cannot guarantee our clients won’t be considered PSBs, we work with them to devise strategies they can implement to safeguard their status as independent contractors and prepare for any potential surprises.
If you have any questions or concerns about any of the subject matter discussed in the article, please feel free to get in touch and click the contact button below.