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1 EMPLOYMENT INCOME DEMONSTRATION PROBLEMS 1. Employment Versus Self-Employment A highly skilled professional engineer was retained by JJJ Company Ltd. on March 1, 20X8 for a one-year term. The contract stipulated that the engineer be paid monthly, at the rate of $2,500 per month, and $500 per week thereafter should JJJ wish to retain his services. JJJ can terminate the contract at any time for cause and in two months without cause. All similar work was done for JJJ by independent contractors when the taxpayer was engaged. Essentially, the engineer was told what JJJ wanted done and reported weekly on the progress of jobs. His work was not supervised as he performed all work in his own office and provided all required tools and supplies. He did not have use of a company car, as other employees did. The engineer invoices JJJ monthly. Is the engineer an employee or a self-employed contractor? Explain. Suggested Solution ITA 248(1) defines employment as “the position of an individual in the service of some other person.” This broadly defined term implies a master/servant relationship as the critical distinction between an employment contract and a contract for services (that is, self-employment). If there is a dispute as to the source of income, the control, specific result, economic reality, integration and entrepreneurial tests are examined to determine whether an individual is employed or engaged in a contract for services. Control Test.
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