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Employee or self-employed

Because of Covid-19 shortage of manpower, the owner of a roofing company reached to my client for help to fulfill the rest of his contract obligations.
They both verbally agreed that my client would essentially be a subcontractor and provide his own tools and equipment, use his own pick-up truck to travel to different sites and complete the work, timewise and specifications, as indicated on company owner’s contract with his customers.
The company owner paid my client 1/2 of the proceeds from each of his contracts (including HST collected) upon completion.
Most of the materials (about 3/4) needed were purchased by the company owner with the verbal understanding that he would include 1/2 of these expenses (including HST paid) to my client’s income. My client directly purchased the rest of materials needed, himself, as substantiated by invoices.
In discussion with both of them, they did confirm the above mentioned arrangements were their exact intention from the start but unfortunately nothing written on paper.
My client started his work on April 3rd and finished on Oct 15th, 2020 with a total income of around $66,000. At well over 65, he doesn’t intend to undertake any other work.
Any opinions on whether my client effectively was self-employed (and as such, in need of an HST account) or an employee.

There is no question in my mind - he needs an HST number. Your client used his own tools and equipment; worked his own hours; not under the supervision of the contractor. The arrangement as described is sub-contract. I see nothing that would point to him being an employee.

Hello Taxwave

This is an intriguing situation with two parts. First, the “Independent Contract Vs Employee” issue, and secondly, the HST issue.

Your enquiry seems to be mostly on the first, which I will try to address.

The determination of contractor Vs employee status is one of the case’s specific facts as there is no definitive test prescribed in the regulations.

CRA will likely see this as a business between independent contractors. Evidence of this is that your client provided his own tools and truck. He purchased a significant percentage of the required supplies, and he worked without supervision or direction from the owner of the roofing company. Your client did not have an office or working space in the roofing company, nor did he receive any standard employee benefits such as a medical plan, vacation or statutory holiday pay. He did not have an open-ended long-term arrangement to provide services. Furthermore, an agreement, admittedly only a verbal one, existed that your client would operate as a separate business. All of these are traits of an independent contractor.

CRA would also consider that some of the work materials were provided to him. Your client had only one client of his own, both of which are generally evidence of an employee relationship.

I believe that he will be considered an independent contractor, but other aspects of the arrangement could also be considered. How did the existing business find your client? Had he advertised his services? Did he have any specific trade licences? One can think of several more.

I hope this is of some help.

Best Regards

Stephen

@taxwave

  1. GST/ HST Registrant
    Yes. Income is greater than $30K.

  2. GST/HST Registration date.
    Choice of either one of the below.
    A) date of business start.
    B) trigger date per CRA GST guide for the first period in which or immediately following the GST registration threshold.

Normally I recommend the start of the period when substantial tools, equipment, and vehicle change of use or purchases are made for the ITC claim.

CRA reference:/

  1. Common GST reporting special cases.

TRUCKING - The Trucking industry regularly uses lease operators and/or trucker owner-operators as sub-contractors. As a result the trucking industry regularly uses and INTERLINE AGREEMENT in which the top level invoices and collected GST and pays the subcontractor income excluding GST. The subcontractor is usually a GST registrant because their income exceeds $30K. This allows them to claim GST ITC on expenses and asset additions.

FARM - Farmers, land renters, and shared profit on crops has special GST rules where crop income is not subject to GST but many of the supplies and asset additions are subject to GST and claimable as ITC’s.

CONSTRUCTION - Construction has some special GST considerations for new housing builds. Roofers have normal GST-HST treatment.

  1. Sub-contractor vs Employee
    Who is a sub-contractor?
    The construction industry is so very well established as using sub-contractors that the sub-contract income is reported on a special T-slip, the T5018 slip.
    CRA reference:/
    https://www.canada.ca/en/revenue-agency/services/tax/businesses/contract-payment-reporting-system-cprs.html
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