Tax change from salary to self employed

I have a question about taxes.
Currently, I work for a production company, and due to the characteristics of my job, it has a lot of contracotrs. So I’m going to get a business number directly and change from salary to contract worker.(Production company → my sole proprietorship → me) What I’m curious about is, for example, if you’re currently receiving $2,000(before tax) bi-weekly,

  1. When I become a contract worker, can I claim a total of $2,000 bi-weekly, including 13% tax through invoice?
    (ex 1,769.91 + 230.09(13%) = total 2,000)

  2. If that happens, can I calculate the tax I report at the end of the year as 13% of the total income + 9.9% for CPP?

  3. Is there any additional tax except the 13% for the production company to pay related with the product that I sell, when they pay for the product?

[quote=“potter0927, post:1, topic:4939”]
I have a question about taxes.
Currently, I work for a production company, and due to the characteristics of my job, it has a lot of contracotrs. So I’m going to get a business number directly and change from salary to contract worker.
[/quote]"I have a question about taxes.

“Currently, I work for a production company, and due to the characteristics of my job, it has a lot of contracotrs. So I’m going to get a business number directly and change from salary to contract worker.”
In general, the first thing you should be aware of regarding business income is the requirements of S230. Failure to comply properly with S230 could lead to prosecution under S238
("…is guilty of an offence and, in addition to any penalty otherwise provided, is liable on summary conviction to (a) a fine of not less than $1,000 and not more than $25,000; or (b) both the fine described in paragraph 238(1)(a) and imprisonment for a term not exceeding 12 months.")

So if you are contemplating future business income, you should first contact your provincial CPA association for a referral to a local CPA in your area, and get an appointment to see one.
Regarding your specific questions, the law does not permit a taxpayer to simply change reality around on a whim and report income in ways likely to be contrary to law. In such a case, your employer is likely also to be liable to penalties.

Again, the way to properly address your specific situation is to consult with a person who has professionally studied this at post-graduate level, such as a CPA, and to have them examine your situation and documentation, then take their advice.

Making it up as you go along from the internet carries risks of legal breaches such as S238 of the ITA referred to above, amongst others, such as penalties under the ETA.

(By the way, this is a Taxcycle software user forum).

If the company forces you to go by contract, they will start issuing you payment vouchers once you get your business and sales tax numbers. Vouchers are similar to invoices but produced by the payer.

I wouldn’t change to contractor if I have the option and the payments are not at least one and a half times the salary I get now + sales taxes. I have clients in transportation who regret going independent. There is a lot of associated hidden costs as well.


“If the company forces you to go by contract”

The Company (Employer) is not allowed by law to summarily try to change the classification on a whim, in the same way that the individual (employee) is not permitted to.

Just because an employee or employee or some person is not aware of the specific law under which fines, penalties, prosecution etc may be pursued, will not make them immune to potential consequences.

Also, a phrase such as “If the company forces you to go by contract” sounds like the beginnings of a “wrongful dismissal” lawsuit to be started by the employee’s labor lawyer… :game_die:

As others have pointed out… please seek and pay for a qualified person to aid you in this matter. They do not need to be a CPA, but they do need to be knowledgeable in the areas of income tax, self employed, employee vs subcontractor, etc. Your question leads us to feel that perhaps think you can just do whatever is best tax wise. The reality is you must follow the income tax act ( ITA) . Best of luck in your search for qualified help and my sincere apologies if I have read too much into your question.

@joe.justjoe1 I have a dozen truck drivers as clients some of whom were appeased to go independent. The reality is that the advent of Uber and Lyft models allowed a lot of other companies to follow the suit and bypass labour laws.

" bypass labour laws"

… And good luck to them with that in Court…

However, in all cases, it is nevertheless mandatory for all taxpayers to follow the ITA, ETA, etc… Nobody gets a pass from those, same as nobody gets a pass from the Criminal Code…

If you’re being paid $2k bi weekly now and you charge $1769.91 + $230.90 (HST) you have just under cut yourself the HST amount why would you do that?

If you become HST registered and the Business is HST registered all HST you charge them they can turn around and claim back. So you should be charging $2,000 + HST

Being an employee or a self employed tax payer is based on facts not whatever the tax payer prefers.
Refer to guide RC4110 - look at the most current version (google it).

Do not blindly allow an employer to switch you to a contract worker. There could be serious tax implications for them and you. For example, if they are audited in the future and the CRA argues that you are an employee and not self employed then CRA will be looking for CPP and EI amounts + interest + penalties.

If you do become a contractor which again would be based on facts not preference you will be responsible for the full CPP amount whereas an employee normally pays half and the employer pays the other half.

You’re required to collect HST on your services/sales once you hit the $30,000 threshold. You may voluntarily register for HST before you hit the $30,000 in sales/revenue
Look at the link below for when to register:

I am not sure about the other posters on here but bounching from salary to contract worker does not seem right. I realize situations can change but you better have a strong case to present should the CRA question the change.

Finally, I suggest you call the CRA and a tax accountant (does not need to be a CPA, however, CPA’s are a great option) to get your tax affairs in order.

Based on $2000 per month pre-tax you would report 1769.91 x 12 as total income. You’d then have your expenses. You would be responsible for the full amount of CPP based on the net business income along with federal and provincial taxes. You’d have to put aside some for taxes to make up for the tax deducted at source. You’d clearly be losing out on this scenario unless you charged 2000 plus tax per month. They would either issue you a T5018 or a T4A depending.

In summary, stay salaried. It works out best for you. If you are required to use a phone, car or home office then get employer to sign a T2200 - Declaration of Conditions of Employment

And of course send in the HST less any applicable input tax credits based on business expenses

Oh boy…where does one begin?

While either you or your “employer” can summarily decide that your position, which is currently an employment position, has become a contracted one, that decision may or may not stand the tests set out in various acts.

Let’s start with employment law: most provinces have employment law designed to protect employees from abuse by employers, and set out “employment standards” which specify such things as mandatory holidays, vacations, pay standards etc. As a “contractor” you have none of those protections.

CRA, for its part (and its collateral pals) have a separate set of laws in determining what is pensionable (for CPP) and insurable (for EI) income. As well, the Courts have set out various determinants of what constitutes an “employment” vs a “contractual” relationship. (This used to be called “master-servant”…and the term, while odious, carries the correct implications.) Where the “employer” controls much of how the “employee” works, when, where, supplies tools etc…the relationship is an “employment” one and is subject to mandatory deductions and T4s etc.

Where there is a “risk of loss”…something there is not for an employee…the relationship may, if the “contractor” controls much of the timing, nature, tools etc. of the work…be a “contractual” one.

But you don’t just get to choose. (Well, you do…but someone will pay a price for doing so eventually. Either you by not being properly paid, or the “employer” by paying both the employees’ and employer’s portions of both CPP and EI. And you having expenses denied and being reclassed as a T4 earner.)

This is an area in which abuse abounds and I’ve fought numerous cases over the years in ensuring that employees (who were not, and never should have been treated as contractors) get the full protections of the provincial and federal laws, entitlement to proper pay and EI etc.

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You may wish to start by reading RC4110 which sets out the differences between Employee and Contractors. You can find this

Then you may wish to dive into the CRA’s information about Business

That page has links to RC4002 and RC4022 which will be both useful to you.

That covers off the “free” stuff. Which, as you might realize, gives you the same value as what you paid for.

Best of Luck!