Acco340Lecture 2-3 - Employment Income

Independent contractors are i taxed as unincorporated

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           Independent contractors are: i) taxed  as unincorporated businesses and consequently are allowed more deductions than employees in respect to  expenses incurred to earn self-employment income. ii) paid without any deductions at source (eg. federal & provincial income taxes, QPP/CPP, EI etc), and no reporting  (eg. T4) is required by the payer. iii) -not eligible for the Employment Insurance program and therefore not required to make any employer or employee  contributions to fund this program, however, are -members of the Quebec Pension Plan/Canada Pension Plan and required to make contributions to  fund both the                       employee and employer portion of the Plan costs ( ie, employs himself-a self-employed person)   iv) not eligible for fringe benefits normally provided by an employer to its employees (eg. group medical care, paid  vacations, private pension, etc). v) Responsible for the accounting and tax filings (eg. GST and income tax) associated with self-employed income that  is considered to be unincorporated business income. Employer’s advantage  in dealing with “independent contractors” as opposed to “employees” are savings in : i)statutory employee  payroll costs (such as employer contributions to QPP/CPP, EI, Workers’ Compensation, provincial medicare programs, etc);ii) no  private fringe benefits costs ,iii) less admin costs (eg. payroll) and iv) no on-going commitments (eg. no employee severance  payments, maternity leave, etc)
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   Distinction Between Employee and Self-Employed (Independent Contractor     )   No clear definition of what constitutes an employer – employee relationship  (decisions are based on a preponderance of facts ) RC4110 Pamphlet “Employee or Self-employed” describe the  major factors  that should be considered and that the courts have  used to render their decisions: 1.  Control                   -if the payer controls the manner in which your work is to be performed=employee 2.  Ownership of Tools               -if supplied by the payer in order to do the work=employee 3   Ability to subcontract or hire assistants    -if must personally do the work=employee; if can subcontract the work=self-employed 4.  Responsibilty for investment and mgt      -if no capital invested in the business & no presence in mgt =employee 5.  Chance of Profit/Risk of Loss       -employees assume no financial risk  6.  Integration             - employees act on behalf of the payer - Costly impact if CRA declares that an independent contractor is really an employee – eg .  
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