Employment Income, Lesson 1

Employment Income, Lesson 1 - Employment Income Identifying...

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Employment Income
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Identifying Employment Income Employment Income results from the taxpayer working for another person (individual or corporation) Alternatively, a taxpayer may be self-employed, which results in business income
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Employee vs Self-Employed Employee Self-Employed Permitted a limited number of deductions Can deduct all reasonable expenses incurred to earn income Employers must withhold income tax, CPP and EI contributions from employees’ paycheques (source deductions) Taxpayer is required to remit tax installments and double the CPP premiums (both employer’s & employee’s share) Because the self-employed are taxed on ‘net income’ while employees are taxed on gross income, individuals may have a preference in how they are classified for tax purposes This results in conflict between individual taxpayers and the tax authorities
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Tests to Determine Whether the Taxpayer is an Employee or an Independent Contractor 1. Control Test: who controls HOW and WHEN the work is performed 2. Integration Test: Services provided for a specified work OR on an on-going basis? Old test based on services performed: integral to the business or an accessory? CRA: “a person is engaged to achieve a defined objective and is given all the freedom to obtain the desired result” = self-employed 3. Ownership of Tools 4. Economic Reality: Individual invests capital and manages the business chance of profit or loss
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Example Problem: Employee or Self-Employed?
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Alberta oil company to work full-time on a specific oil and gas exploration project. He will be working on company premises alongside other employees of the company. Tom will be using the company’s equipment. He must provide regular reports to the company vice- president, summarizing the progress of the project. Other geologists working at other sites for the company file similar reports. Tom receives no company benefits or vacation pay. The company does not withhold income taxes, EI or CPP premiums. Tom knows he must secure another client(s) once the contract is finished . Is Tom an Employee or an Independent contractor?
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Employment Income, Lesson 1 - Employment Income Identifying...

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