Income Tax Guide To: Independent Contractors

Independent contractors in Canada are eligible for many of the benefits provided to small business and the self-employed. First you must determine that you are indeed a contractor and not an employee of the company or companies that you service. To do so, verify your eligibility with the information below. After that, you can read on for a brief summary of the tax credits available to contractors.

 

AM I AN EMPLOYEE OR CONTRACTOR?

It may seem inconsequential at first glance, but it’s an important distinction– employees are not eligible for the same tax credits. Consult the criteria below to ensure you do indeed operate as an independent contractor.

Who withholds payroll, income tax and GST/HST? If the company that contracts you does all this, you are most likely considered an employee in the eyes of Canada Revenue Agency (CRA).

Who contributes income to Canada Pension Plan and Employment Insurance? If you handle your own CPP & EI contributions, you are most likely considered a contractor in the eyes of CRA (defined as “self-employed” or “small business”).

Who owns or pays for the necessary equipment? Independent contractors are almost always financially responsible for the gear, material and tools needed for the work being completed. This is why CRA considers them tax deductible for contractors, small businesses and the self-employed.

Are you financially at-risk? Employers often guarantee the income and contracts of their employees because the corporation at-large can absorb all financial risk. On the other hand, contractors stand to lose their entire investment and can even report a loss– regardless, they are almost always required to complete the work.

 

WHAT TAX BENEFITS ARE AVAILABLE TO CONTRACTORS?

The following is only a summary of a few CRA claims and credits offered to independent contractors:

  • Supplies and materials
  • Tools
  • Computer hardware and software
  • Travel costs
  • Meals and entertainment
  • Home office or workspace
    • Utilities
    • Mortgage/rent
    • Maintenance & upkeep
    • Insurance
  • Vehicle expenses
    • Fuel
    • Repairs & maintenance
    • Tolls & parking costs
    • Insurance

After you use this guide, cross-reference the CRA definitions and rules via their website or a Liu & Associates tax expert. Our representatives can ensure you enjoy all of the claims and credits available to independent contractors. Don’t let your business miss out– visit or contact us today!