Employee vs. Independent Contractors

It’s crucial to know whether your workers are employees or independent contractors. Big dollars may be at stake in the form of Federal and provincial assessed penalties resulting from misclassification. The validity of your company’s pension plan may also be at stake..

A periodic review of the status of your workers to see if they are properly classified is critical, but the process isn’t easy due to the complexity of the issue. The Canada Revenue Agency has published a guide called “Employee or Self-Employed?”, which contains an extensive analysis to determine whether there is an employer-employee relationship or a business relationship. The four factors which are considered are: control of the worker, ownership of the tools, chance of profit/risk of loss and integration. There is no litmus test for exactly how many factors must be satisfied, nor are the factors uniformly applied.

Claiming Automobile Expenses

One of the more common expenses claimed by taxpayers are automobile expenses (applies to any motor vehicle, such as van, bus, pickup truck, station wagon, SUV or other truck). Many individuals use their automobile for work or business and incur personal expenses in doing so. It is important to note that only expenses of a business nature are eligible as a deduction against their related income. As such the Canada Revenue Agency (CRA) has strict requirements in ensuring that only business-related expenses are claimed. As a result, the retention of automobile tax records becomes imperative fore every tax payer that uses an automobile for work or business.

Small business delivery driver is confident his accounting, motor vehicle expenses and taxes are handled well

Employer-Paid Disability Premiums

If you think that paying for your employee’s disability premiums is always a good think, think again. If you provide your employees disability as a non-taxable fringe benefit, payments they receive upon their disability will be, in most cases FULLY taxable to them!

Payments received due to disability are not taxable if:

  • Your employees aid the premiums on the policy with after-tax funds, OR
  • You paid the premiums but deducted the amount from their income

The cost of disability insurance- even over a good amount of time can be far less than the tax due on the income received under the policy. Like all insurance, it all depends on whether you actually collect under the policy.

Keep The Invoices

Improper input tax credit (ITC) documentation is one of the main reasons for GST/HST reassessments. Proper invoices to support ITC’s are required by Canada Revenue agency auditors. For example, the input tax credit may be disallowed if only the credit card slip is provided rather than the actual invoice. The supplier’s GST/HST registration number should be printed on the source document. Some clients use credit card receipts, bank statements, and cancelled cheques to substantiate the GST/HST input tax credits. However, none of these documents show the supplier’s GST/HST registration number.