A sobering business statistic Canada Day is that 50% of all businesses close the doors to their business within five years says CFO services. And 29% of those businesses will say that they ran out of money is a reason why they had to close the door. Often when businesses start up, they do everything they can to save money in order to increase the cash flow in their business and avoid running out of money, problem is some of the ways they try to achieve this goal, are not so great. Business owners try to save money by not paying source deductions to CRA, but considering their employees as independent contractors. This is a very risky move, because the amount that theyíre going to gain, is very small especially when they consider what the penalties they could pay when CRA finds out.
Often entrepreneurs feel that this is a problem in their business, because they have been doing it for so long, and have never had a problem. But just because they havenít been discovered yet doesnít mean this is not a problem at all. When the CRA decides to audit them, they will not only find those employers who are found guilty, they will also have to pay retroactively all the fees that they hadnít initially paid plus interest. This is in an effort to encourage business owners to not make this error in the first place says CFO services. Those retroactive payments plus interest plus penalties can be financially devastating to a business. There have been businesses who have actually close their doors because they were unable to pay the fine.
The problem exists in the business when a business owner hires an employee as an independent contractor. The way that most businesses can simply avoid this problem, is either hiring employees and having the proper deductions taken of their check, or by hiring contractors who have been incorporated. Then the responsibility will fall to that incorporated contractor to report their income and pay their taxes to CRA themselves says CFO service. The reason why hiring an independent contractor who is not incorporated is a problem, is that if they are not paying taxes, CRA has an issue with that in unfortunately the responsibility falls to the business owner to have ensured that the people he hired are set up properly. Many businesses can simply eliminate this problem by not hiring unincorporated contractors. Many large companies have a policy that says they will not hire unincorporated contractors in order to completely eliminate this risk from their business. No unincorporated contractors, a problem.
And as easy as this problem is to avoid, it is as easy to fix says CFO services. Employers only need to switch those contractors who should be deemed employees to employees and start removing source deductions from their check and sending them to the government. or another option is to ask those people they are considering contractors to become incorporated themselves.
Itís a big problem that businesses have when they have not set up downplays properly in their payroll system, and donít take the proper source deductions off their paycheck says CFO services. This is extremely risky move, because as little money as this is saving the business, there is huge potential for business owner to be assessed and receive massive fines from the CRA. This is a completely avoidable problem, business owners can ensure they donít make by ensuring that employees have the right source deductions taken off their paychecks, and set anyone the higher as an independent contractor is incorporated.
Many business owners believe that itís not a problem because theyíve been doing it for so long and have never been audited, but just because theyíve not been found out, doesnít mean what theyíre doing isnít wrong. And the longer they do it, means the higher their penalty will be when CRA does find ou says CFO services t. And when CRA finds out, they will investigate the business thoroughly to determine if the contractors that businesses hired should be considered employees instead. There are several questions that CRA will ask not only the business owner, but there employees, contractors and even accountant.
The two most important determining factors whether CRA will consider the contractors employees or not, are whatís contractors profit and loss in the business, and what is the business ownerís control over that person. In order for a contractor to be seen as a legitimate business person, CRA will determine if they have any risk in the business. Such as do they have to buy equipment, their own insurance, or take on any risk in the business. If they are taking on risk, chances are CRA will see them as a contractor. The second most important determining factor is how much control business has over that person. They want to know things such as who trains that person, they required to attend staff meetings, can they hire their own placement if they canít make it to job, or does the business owner require that specific person to do that specific job who they want to see if that contractor is treated similar to an employee.
CRA actually has a list of over 50 questions that they will be asking a variety of people in the business such as is that contractor have other clients that they are able to see, whose insurance to the use, appearance are they responsible for, whose thing their schedule, did they actually been on the job. These questions asked of all the employees and contractors in the business, will help CRA find out very quickly who is an employee and who is an actual contractor. It will be very difficult says CFO services for business owners to try to talk their way out of fines and convince CRA to not penalize them. When CRA makes their final determination, the business owner will then get hit with their fines and penalties.