Dear Working Wise,
I just started a new as a contractor. My friend, and new co-worker, helped me get the job. He says that because we’re contractors, we can write off all sorts of expenses. Can you tell me what I’m allowed to write off on my tax return?
Signed, Curious Contractor
October 12, 2017
Dear Curious Contractor,
Congratulations on your new job. Taxes are a federal issue and I really can’t provide advice on which expenses you are entitled to deduct.
You might want to visit the Canada Revenue Agency for information on business taxes. They offer a checklist for new small businesses.
You can also check out the Business Link, which contains a lot of easy-to-read information for current and new business owners. And, as always, accountants are also excellent sources of tax advice, services and information.
However, your description of your new job makes me wonder if you are truly a contractor and not simply a contracted employee. The difference may seem small, but it is actually quite significant and involves everything from being able to write off business expenses to how accountable you are if things go wrong at work.
Employees are covered by the protections in employment standards legislation, such as overtime pay, vacations, and termination pay. Someone who is truly an independent contractor is not be entitled to these protections.
Independent contractors also have responsibilities, particularly if you are an employer of other individuals, when it comes to employment standards, occupational health and safety, and worker’s compensation.
Governments use different considerations to determine if a worker is an independent contractor or contracted employee.
In general, independent contractors tend to:
- Have control over when and how the work is done;
- May employ or subcontract others to do the work;
- Have more than one client/employer;
- Supply the equipment, furniture and tools required to do the job;
- Carry the risk of profit or loss from the job;
- Submit invoices and receive pay as a lump sum or through installments;
- Do not participate in the Employment Insurance program;
- Have the required training before starting the job or pays his/her own training costs;
- Work without supervision to meet the terms of the contract.
These, of course, are general guidelines, but they should give you a better idea if you are truly an independent contractor.
You might want to read Employee or Contractor: Know the Difference. This publication explains the differences and covers the various implications and requirements of each.
You might also be interested in reading Self-Employment: Is it for me?. This resource lists some of the pros and cons of starting your own business.
Good luck in your new venture!
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