Human Resource Services webcast Engaging an independent contractor? It s more complicated than you think! February 26, 2013

Transcription

1 Human Resource Services webcast Engaging an independent contractor? It s more complicated than you think!

2 Administrative information 60 minute webcast Audio with slides For a better viewing experience, close all other applications For better sound quality, use headphones h To print this entire PowerPoint presentation, click on the green Resource List widget and then Download Slides If you have questions during the live program, type them in the Ask a Question box located on the left side of screen and click Submit This presentation will be archived and available for later viewing as an on-demand presentation PwC 1

3 Administrative information In order to receive CPD credit for this program, you must stay on for the entire live program and participate by responding to all interactive polling questions CPD credit cannot be awarded for participants who are not logged on to this webcast as themselves, who participate over the phone, or attend the on-demand version For those qualifying for CPD credit, a certificate will be sent shortly after the webcast to the address used for registration The certificate will acknowledge one hour of structured learning towards the Institute of Chartered Accountants of Ontario CPD requirement or similar accreditation For webcast participants in other jurisdictions, you should follow up with your local governing body to confirm if it meets requirements PwC 2

4 Agenda Employee vs. independent contractor Tax withholding & reporting considerations Non-resident contractors GST/HST implications Summary & conclusion PwC 3

5 Employee vs. independent contractor Is this individual an employee or independent contractor? Affects income tax withholding, CPP, EI, benefits, etc. If Canada Revenue Agency (CRA) does not agree ---- costly error may lead to payroll audit, penalties & interest PwC 4

6 Employee vs. independent contractor Who is an independent contractor? Self-employed individual The payer has the right to control or direct only the result of the work done by an independent contractor Contract between the parties is a Contract for Services PwC 5

7 Employee vs. independent contractor Who is an employee? The payer controls what will be done and how it will be done Contract t between the parties is a Contract t of Services PwC 6

8 Polling question #1 Does your organization hire independent d contractors? t Yes No Not sure PwC participant PwC 7

9 Employee vs. independent contractor Determination of employment status All Other Provinces Québec 1. Intention of the parties 1. Intention of the parties 2. Is the intention reflected by the facts? - Review indicators of 2. Determine if the employment meets the definition of a contract of employment or contract for services employment status: control, risk, etc. under Québec Civil Code by considering factors such as performance of work, remuneration, relationship of subordinates, etc. 3. Compare intention with their actual working relationships by considering the factors in step 2. PwC 8

10 Employee vs. independent contractor Indicators of employment status Control Ownership of tools & equipment Financial risk Responsibility for investment and management Opportunity for profit PwC 9

11 Employee vs. independent contractor Indicator: Control Indicator Employee Independent Contractor Relationship Subordinate Independent Degree of control Held by employer Held by independent contractor Method Directed by employer Independent Result Controlled by employer Controlled by payer Work for others Usually no Usually yes PwC 10

12 Employee vs. independent contractor Indicator: Ownership of tools & equipment Indicator Employee Independent Contractor Ownership of Owned by employer Owned by contractor tools Right of use Employer Contractor Repair & Employer Contractor maintenance Insurance Employer Contractor PwC 11

13 Employee vs. independent contractor Indicator: Financial risk Indicator Employee Independent Contractor Responsible for No Yes operating expenses Hiring of subordinates No (depends upon role) Yes Working relationship Continuous Typically hired for a specific job Financially responsible No Yes for completion of job Protection & benefits Received from employer No protection/benefits received from payer PwC 12

14 Employee vs. independent contractor Indicators: Responsibility for investment & management AND opportunity for profit Indicator dcao Employee poyee Independent Contractor Capital investment None Has investment Business presence None Has business presence Realize business profit or loss Maybe Always Ability to accept No Always contracts PwC 13

15 Employee vs. independent contractor Still in doubt? Either party can request a ruling to have the status determined Write a letter or a complete Form CPT1 Request for a Ruling as to the Status of a Worker Under the Canada Pension Plan and/or Employment Insurance Act Request for a Ruling must be submitted bf before June 30 th of the following year Written documentation of the relationship is important PwC 14

16 Tax withholding & reporting considerations Residents of Canada Employee Independent Contractor Tax Employer to withhold No withholding required withholding income tax, CPP/QPP & EI required? Reporting Report income and tax Payer reports income on T4A requirement? withholdings on T4 CPP and EI contributions? Both employer and employee subject to CPP and EI Self-employed individuals pays both portions of CPP PwC 15

17 Polling question #2 Does your organization have any non-resident independent d contractors? Yes No Not sure PwC participant PwC 16

18 Tax withholding & reporting considerations Implications for a non-resident contractor Under Regulation 105 every individual/company id paying to a nonresident person a fee, commission or any other amount in respect of services rendered in Canada should deduct or withhold 15% of such payment Contractor may be exempt from taxation in Canada under a treaty can file a waiver to reduce withholding Administrative Exemption: $45 per day per person for meal $100 per day for accommodation Reasonable travel expenses supported by receipts/vouchers PwC 17

19 Tax withholding & reporting considerations Non-residents of Canada Employee Reg 102 Independent Contractor Reg 105 Tax Employer to withhold Withhold 15% tax for withholding required? income tax, CPP/QPP & EI (may be CPP and EI exempt) non-residents Reporting requirement? Report income and tax withholdings on T4 Payer reports income and tax on T4A-NR (report the non-taxable reimbursements) CPP and EI contributions? PwC Both employer and employee subject to CPP and EI N/A 18

20 Tax withholding & reporting considerations Relief from Regulation 105 withholding tax available by filing a Waiver Request for Reduced Tax Withholdings: Under an income tax treaty - Business profits will be taxable in the country of residence of the taxpayer unless there is a Permanent Establishment (PE) in the other country Based upon actual income and expenses if actual tax < 15% PwC 19

21 Tax withholding & reporting considerations Reg 105 Waivers for reduced tax withholding Two types of waivers: 1. Treaty-based waivers Relief available under Articles V and VII of Canada-US Tax Treaty Based on the absence of Permanent Establishment or Fixed Base in Canada 2. Income & expense waivers Reduce Reg 105 withholding to match estimated Canadian tax liability calculated based on net income subject to graduated rates Not final tax liability Deductible expenses: professional service fee, accommodations, meals, travel, mileage, equipment rental, remunerations paid, other expenses (allowed on case-by-case basis) PwC 20

22 Polling question #3 Has your organization ever been subject to a Reg 105 audit? Yes No Not sure PwC participant PwC 21

23 Non-resident contractors Canada US Income Tax Treaty Applicable articles dealing with independent contractors: Atil Article V Permanent Establishment Etblih t Article VII Business Profits PwC 22

24 Non-resident contractors Article V Permanent Establishment Fixed place of business The business wholly or partly carried on through this fixed place of business Authority to conclude contracts Deemed permanent establishment if: a) Services performed by an individual id who is present in the other country for a period or periods aggregating 183 days or more in any twelve-month period, and more than 50 percent of the gross active business revenues is derived d from the services performed in that other state by that individual; or b) the services are provided in the other state for an aggregate of 183 days or more in any twelve-month period with respect to the same or connected project PwC 23

25 Non-resident contractors Article VII Business Profits The business profits taxable only if the non-resident carries on business through a permanent establishment. If the individual has or had a fixed base regularly available to him then the income is attributable to the fixed base is taxable PwC 24

26 Non-resident contractors Issues for contractors from the United States: S-Corporation Not taxed as a corporation in US as income flow-through to shareholders but is treated as a corporation in Canada Can elect to be treated as a corporation in Canada but may lead to permanent establishment and/or corporate tax issues Limited Liability Company (LLC) Treated as a corporation in Canada may lead to permanent establishment and/or corporate tax issues C-Corporation Permanent establishment and/or corporate tax issues PwC 25

27 GST/HST implications Registration Every person who carries on business in Canada, other than a small supplier, must register for GST/HST purposes if that person makes a taxable supply in Canada Carrying on business in Canada definition is different under Excise Tax Act vs. Income Tax Act May be considered to be carrying on business in Canada even if no permanent establishment PwC 26

28 GST/HST implications Registration Not required to register if you are a small supplier : a sole proprietor, partnership or corporation having total t revenue from taxable supplies (before expenses) from all of the businesses are $30,000 or less in the last four consecutive calendar quarters or in any single calendar quarter PwC 27

29 Polling question #4 If your organization has non-resident contractors, t have they been charging you GST/HST? Yes No Not sure / not applicable PwC participant PwC 28

30 Summary Identify relationship employee or independent contractor? If independent contractor is a non-resident then subject to Reg 105 tax withholdings If the non-resident contractor is qualified for reduced tax withholding then he can file for a waiver with the CRA Payer to report income and tax withheld (if any) on T4A or T4A-NR Individual to file a tax return in Canada and report income Independent contractor to determine if required to register for GST/HST PwC 29

31 Conclusion Why is this important? CRA scrutiny and audit activity To be compliant with tax rules and requirements Manage costs PwC 30

32 Q & A Jerry Alberton jerry.alberton@ca.pwc.com Christine Herrington christine.a.herrington@ca.pwc.com Shabnam Malik shabnam.malik@ca.pwc.com PwC 31

33 Thank you! This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers LLP. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. PwC 32