Your tax status marks a strong impact on your Canadian Income Tax. The motivation for you to be an independent contractor and not an employee is that the independent contractors have far more write-offs and pay a far lower tax rate than employees. This allows them to retain more after-tax cash in their hands. The CRA uses specific criteria to determine your tax status as an employee or independent contractor. You can take steps to protect your status as an independent contractor if you understand them and how to implement them. So, how can you do it? Well! it all depends upon the contract between you and your customer or quote-unquote employer. The agreement must include specific clauses, so it passes the CRA’s test of independent contractor versus an employee.
Thus, it is important that independent contractors take care to ensure that their status is clearly defined as such. Of course, you should always consult with your accountant or contact the CRA if you are unsure about your classification. So, if you want to save yourself a ton of money, feel free to reach out to Filing Taxes at 416-479-8532. Schedule your tax preparation appointment with us and take the first step towards proper management of your finances. Our professional personal tax accountants will make sure to get you the maximum tax refund on your personal tax return.
Independent contractors enjoy a considerable tax advantage when it comes to the potential for tax deductions that aren’t available to employees. All reasonable business expenses are generally allowed for a tax deduction. Companies prefer to take on board independent contractors to avoid stringent and expensive commitments that come under employment law. Businesses don't have to provide independent contractors with health insurance, life insurance, and other common employee benefits—all of which increase their costs.
The foremost factor is to set your business up the right way from the beginning. This will save you from hassle down the line. Understand and balance the benefits of being an independent contractor with the downsides. Write a business plan and set up your business accordingly. You must have your own standard contract, NDA (non-disclosure agreement), and services agreement for your clients to sign.
Companies prefer to hire an independent contractor for most types of projects, there is no legal binding law put anything in writing. But, failing to have any written agreement as an independent contractor is a recipe for disaster. The statute requires some kind of oral or written settlement to determine the tax status. A lot of court cases have been decided on this very factor alone in treating an individual as an independent contractor as opposed to an employee.
If you are an individual in business who works through a contract of service for its payers, meaning the payer cannot exercise any control over your work, you are classified as an independent contractor. As an independent contractor, you are contracted to perform a service for another business as a non-employee. You are responsible to keep track of their earnings and include every payment received from clients.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.