Employee Versus Independent Contractor – Tax Implication

Overview

Employees are often misclassified as independent contractors. Misclassification can sometimes be an innocent mistake by all parties involved, or a conscious decision made by an employer to avoid certain responsibilities and costs as legislated by the Personal Income Tax Act or other regulatory bodies. In either case, the penalty for making the wrong distinction can result in serious tax exposures to organizations.

In accordance with Section 108 of the Personal Income Tax Act, 'Employment' includes any appointment or office, whether public or otherwise, for which remuneration is payable for tax purposes. A person in paid employment should be distinguished from another who is self-employed, as an independent contractor.