Procedures for the Determination of Contractor Status

Purpose

The purpose of this document is to address the taxation of payments where the University is entering into contracts with individuals or companies. The determination of whether the contractual relationship is an employee-employer one or whether a consultant is legitimately self-employed situation will help the University avoid penalties.

The University is required to collect appropriate taxes under the Income Tax Act on payments made to persons providing services to the University. At the same time, the University endeavours to extend every possible advantage, within legal boundaries, to these individuals.

Where the University deems that an employer-employee relationship does not exist, it must be in the position to defend the determination. A third-party contractor does not have payroll taxes deducted at source and no pensionable earnings are reported by the University. 

Canada Revenue Agency Tests

The Canada Revenue Agency (CRA) applies the four following tests to ascertain whether an employee-employer relationship exists:

Control: This test looks at the control the organization has over the person performing the service. Normally, an employment relationship exists if the institution determines how, what, where and when work will be done.

Control is determined by:

• who decides when the work is done;

• who decides how the work is done;

• who decides the location the work will be done; or

• who sets the standards to be met.

Ownership: Ownership of tools or supplies, which is determined by:

• who owns the equipment to be used;

• who supplies any materials or supplies to be used; or

• who pays for any maintenance of equipment or tools.

Risk of Profit or Loss: The absence of the potential for profit or loss may indicate an employment relationship. If the contractor does not provide services to other organizations, an employment relationship applies.

Risk of profit or risk of loss is determined by:

• who pays for damaged property or equipment;

• who covers any rental costs;

• who covers liability insurance; or

• who covers the costs of any bad debts.

Integration: Is the work an integral part of the normal activities of the organization? Integration is determined by whether the contractor relies on the organization for all or most of its revenue.

Employment Relationship

An employee-employer relationship is deemed to exist, if all the following are determined to be the case:

• Control is exercised by the University in regards of the location, quality and standards of work (e.g., assignment of classrooms are assigned, provision of course material);

• The University supplies learning materials or equipment required to do the work (e.g., special calculators, video or audio equipment);

• The University assumes the risk in respect of any damages to equipment, low registration, etc. (e.g., the University pays for insurance or equipment repairs); and

• The University is the sole or majority source of income to the recipient and the recipient is not providing similar services to any other person or institutions.

The possession of a GST number does not, by itself, confer independent contractor status.

Contractor Status

An independent contractor relationship is deemed to exist if any of the following conditions are met:

• The contractor is not directly controlled by the University, in that either it performs work outside of the University or provides a service that requires it to exercise professional skills and to administer the service independently;

• The contractor provides all necessary equipment or materials (e.g., the contractor is responsible for equipment repairs);

• The contract could vary from what was originally agreed upon (e.g., the contractor is allowed to accept new registrants and keep the profits); or

• The contractor has several clients and sources of income and is not relying solely on the University as a sole source of income.