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How do you determine the difference between an employee and self-employed?

Expert: Jim Innes

Liana asked:

I will be starting work as a consultant and am a little confused. I have read up on the difference between self-employed and employee and the way the CRA determines the difference.

What should I do if it is clear that I am acting as an employee rather than self-employed? I will be collecting and remitting gst/qst. I know that if I were to get audited, then all of my expenses (gas, etc) would most likely be disallowed. Do I declare my revenue as business but not deduct any expenses?

Is it the employer's responsibility if I was hired as self-employed but should actually be on the payroll?

Jim Innes answered:

It is generally the employer's responsibility to make the determination of your employment status; however, you are still at risk. You will reduce your risk by ensuring you report the full amount of your income and claim only expenses that you would qualify for had you been an employee.

You should also ask your "employer" for a T2200 form. This form is a declaration by your employer that you were required to incur certain expense as part of your employment. I would get it now; it might be difficult to get later.

In many cases if your expenses truly qualify as business expenses they will qualify as employment expenses. Individuals operating as independent consultants often get a little aggressive when claiming expenses, claiming an office in the home when an office is provided at work and claiming auto expense when the car is used solely for transportation to and from the office.

About the author

Jim Innes is a Partner at Innes Klayman LLP, Chartered Accountants.

He can be contacted at: 416-590-1728, Ext 314.

His bio page can be viewed here:

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