Vancouver CPA | Exercise Caution between Contractors and Employees
It could potentially be a common misconception that contractors and employees can both be free and clear from the CRA, says Vancouver CPA.
Will happen is big companies will bring someone on as an employee in the CRA doesn’t bat an eyelash, as a matter fact they quite love it. The reason for this is because they’re gonna be to paying their share in tax.
Then, if you bring on an incorporated contractor, the CRA doesn’t assist Sara Lee care about that either. They will accept that relationship between the employer and incorporated contractor.
Vancouver CPA however cautions that what they will not accept is the unincorporated contractor. This is where all the risk begins. Big companies are not going to hire unincorporated companies, it’s as simple as that. The big rule of thumb is, surprise surprise, don’t hire unincorporated companies!
Often times will happen is employers will know in fact they have a risk from within their business. However, says Vancouver CPA, if you want to reduce the risk level, but at the same time you want to switch people from contractors to employees, there could be a certain amount of risk associated with that.
Sometimes as a matter fact it can be extra costs associated with this, or it may generally not be well received at all by the people who have been contractors for a very long time. Now, according to them, you’re changing the rules. When they are due for an incremental increase, that might be the wonderful most strategic way with which to deal with this issue.
As well, you can tell them that if you want to make more money and become more successful, and do more money take home, you will be able to do it in conjunction with that raise. Sometimes you just don’t need to rock the boat as much.
Be careful, as the risk of profit and loss can be the single most important factor. There is a lot of considerations on specific questions that the CRA is going to ask, including your insurance status, whether they have other customers, etc. As a matter fact there is a list probably 4050 or 60 questions long. But what is their risk of profit and loss?
If in fact you profit from a business it goes well and you will obviously make a profit as you have some revenue coming in. However, if it does not go well you’re obviously going to lose money. According to the CRA, that’s when the most important risk factors all those questions they’re going to ask lead back into that rationale. The rationale is, is this person a legitimate business owner with a chance for profit or a significant risk for loss?
There are a lot of questions and concerns that will be elevated by the CRA in response to whether they are contractors versus employees. Some of these questions will pertain to the fact of training and whether they are training themselves. What happens if they are sick, can they hire a replacement?
Vancouver CPA does not want to hear the story that small business dissolves because of the fact that they have been caught by the CRA in terms of using contractors as employees and vice versa.
Business owners will visit the CPA when they need to deal with retroactive payroll remittances, the penalties and the interests etc. because there contractors are going to be deemed employees by the CRA.
This could potentially mean tens of thousands or maybe even hundreds of thousands of dollars in penalties. And obviously with that amount of money, it may in fact mean the failure of your business.
Business owners often threaten the idea that they’ve been in business for one year or five years or 10 years or longer and fill bulletproof as they feel as though they haven’t had a problem with the CRA yet.
Although there are many catastrophic things that could befall you and you are just waiting for it to happen. It eventually will definitely catch up to you. The results can be in fact catastrophic when this finally does happen. It always works until well it doesn’t. At least a very challenging time. This can be a very small sample size of success.
Psychologically, entrepreneurs have a tendency to be very good and proficient at influencing people. They talk to and bend the minds of their employees. They also stay on task with their mission, with their vision for their business, and all the problems associated with their business. They are also good at getting people to buy into their products, their good, and their business altogether.
However, once a entrepreneur who feels as though they are very influential, is associated with the CRA, and has to deal with them, they will find that they are in fact up against a formidable foe. The CRA, as a matter of fact does not care one iota about your situation or how much whining, and drama you put forth to them. They have seen it all before, in terms of theatrics. The sole purpose for the charter professional accountant is strictly to be very judicious and who they accept as a contractor.
The advice of Vancouver CPA says that clients should often be very pragmatic about certain situations in terms of contractors versus employees. One former pragmatism is do you have one contractor that you are paying a few hundred dollars a year two? Maybe there are some minor risks to this however, says Vancouver CPA, be pragmatic on evaluating that risk. What’s the aggregate amounts that you are paying the contractors in fact? The government auditors will usually even ignore something as little as a five hunt dollar threshold. That is the bottom of the audit procedure. If event several thousands of dollars a year with unincorporated contractors, then and only then you might be in trouble.