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


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.




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