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What taxes need to be deducted when working as a contractor?

Expert: George Dube

Mike asked:

I'm going to be working exclusively with one company; in turn, instead of setting me up as a regular employee we agreed that I would work as a contractor. I am just confused on the whole taxation part of it. If I'm being paid from the company a certain amount per week what taxes do I have to pay the government?

Obviously, income tax but what else? Do I have to charge GST/PST? I'm not selling anything just working. The company would be selling things and collecting the appropriate taxes. I'm going to be registering a company so I can set myself up as a contractor.

George Dube answered:

GST will be required and depending on the nature of the services it is possible, although not likely, that PST will be required to be charged to your customer.

With any situation where you are working exclusively with one customer, you should discuss with your accountant whether you are truly a contractor or alternatively you may be considered an employee in the eyes of the Canada Revenue Agency.

The CRA does provide some guidance on this issue on their web site. Where you are incorporating, the deductions that you are entitled to may be restricted, and the tax rate higher, compared to a true contract business if you are essentially considered to be an incorporated employee.

About the author

George Dube is a C.A. with Dube & Associates Professional Corporation, Chartered Accountants.

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