Summary of Principles
Summary of Principles Regarding the Determination of an Independent Contractor vs. an Employee
Although the cases that have considered the issue of whether an individual is an employee or an independent contractor tend to be fact driven, it is possible to draw some general principles from them:
• Taxpayers are entitled to arrange their affairs "in such a lawful way as they wish"; absent a "sham or window dressing," the manner in which the parties viewed their agreement must prevail unless they can be shown to have been mistaken as to the true nature of their relationship.
• It is best for the payor and the worker to reach a common understanding of the arrangement, and this agreement should be put in writing.
• In determining the true nature of a relationship, the courts must weigh all relevant factors and no one test is adequate to all situations.
• The factors to be taken into account include:
– level of control the employer has over the worker's activities;
– whether the worker provides his or her own equipment;
– whether the worker hires his or her own helpers;
– degree of financial risk taken by the worker;
– degree of responsibility for investment and management undertaken by the worker; and
– worker's opportunity for profit (or risk of loss) in the performance of his or her tasks.
• The list of factors described above is not exhaustive. There is no set formula by which the factors may be applied and the weight given to each factor will vary depending on the facts and circumstances of the case.
• The University always accepts the option of the individual seeking a ruling from the Canada Revenue Agency.
Source: Canadian Association of University Business Officers Income Tax Guide prepared by Ernst & Young, Chartered Accountants