Tax Update. Employees vs. Independent Contractors and Cross-Border Employment Issues. L. David Fox, Partner

Similar documents
EMPLOYEE vs. INDEPENDENT CONTRACTOR CONSIDERATIONS

September 25, Brian Ernewein General Director, Tax Policy Branch Finance Canada 140 O Connor Street, 17 th Floor, East Tower Ottawa, ON K1A 0G5

Chantal Copithorn PricewaterhouseCoopers, LLP

The U.S. Canada Tax Treaty Protocol:

Introduction to International Payroll and Reporting. December 13, 2017

IRA RRIF RRSP (including GRRSP) 401(k) Private pensions paid by employers (including IPP and DPSP)

EMPLOYEE vs. INDEPENDENT CONTRACTOR CONSIDERATIONS

Withholding and Reporting Requirements

This Webcast Will Begin Shortly

The U.S. Canada Tax Treaty Protocol: Impacts and Planning Opportunities

The Canada U.S. Tax Treaty Protocol: Impact and Planning Opportunities

Guidelines for Treaty-Based Waivers Involving Regulation 105 Withholding

Rules for determining directors liability INCOME TAX INFORMATION CIRCULAR. Directors liability

THE MARCH 29, 2012 FEDERAL BUDGET

Qs/As - Canada Revenue Agency (CRA) requirements for per diem payments to part-time appointees whose payroll is administered by a ministry

EMPLOYEE vs. INDEPENDENT CONTRACTOR CONSIDERATIONS

DOING BUSINESS IN CANADA

Regulation 102 Waiver Application

January 8, Dear Mr. Ernewein: Fifth Protocol

TAXATION OF EMPLOYEE EMOLUMENTS AND WITHHOLDING TAX OBLIGATIONS Presentation by: Mary Weru. Uphold public interest

Contents. Application INCOME TAX INTERPRETATION BULLETIN. INCOME TAX ACT Retiring Allowances

Tax Tips & Traps. In this edition: TAX TICKLERS TAX TICKLERS some quick points to consider

Issues that Arise in the Context of the Sale of a Business

INBOUND INVESTMENT - CROSS-BORDER ISSUES

US-Canada Tax Strategies for US Entities Expanding to Canada

JONES THOMBLISON LLP, CHARTERED ACCOUNTANTS 3515 Mainway Burlington, ON L7M 1A9

CORPORATE TAXATION: WHAT YOU NEED TO KNOW

Tax Strategies to Minimize the Tax Bite

Introduction to International Payroll and Reporting. November 30, 2017

Table of Contents Personal Income Tax... 3 Tax-Free Savings Account ( TFSA )... 3 Home Accessibility Tax Credit... 3 Qualifying Individuals...

FOREIGN NATIONAL TAX PROCEDURES GUIDE FOR DEPARTMENTS. Document created and modified by Financial Services Revised February 8, 2018

2012 FEDERALBUDGETANALYSIS. March29,2012

YEAR-END TAX PLANNING

ext. 230

2012 TAX PLANNING FOURTH QUARTER

Tax Tips & Traps IN THIS ISSUE YEAR-END TAX PLANNING

To Receive CPE Credit

Retirement Compensation Arrangements Guide

April 21, 2015 CPA CANADA FEDERAL BUDGET COMMENTARY

BROOKFIELD ASSET MANAGEMENT INC. DIVIDEND REINVESTMENT PLAN

Strong Leadership: A Balanced-Budget, Low-Tax Plan for Jobs, Growth and Security

Navigator Federal Budget. The. Key tax measures that may have a direct impact on you

Part XIII Tax & Traps. Malya Amghar Laura Gheorghiu

RETAINING EMPLOYMENT INSURANCE (EI) BENEFITS: Starting Part-Time Work As of August 12, 2018, the Working While on

For CRA use only. Background

Tax Partner, Adams & Miles LLP December 9, 2015

Canadians with International Assets

Restrictive Covenants

Overview of the Canadian income tax system

AGNICO-EAGLE MINES LIMITED DIVIDEND REINVESTMENT

Owner-Manager Tax Planning 5 th Annual Tax Planning for the Wealthy Family

Employee or Self-employed?

Certain Canadian Federal Income Tax Considerations

Navigator. Taxation of employee stock options. The. Please contact us for more information about the topics discussed in this article.

Information Return Relating to Controlled and Not-Controlled Foreign Affiliates (2011 and later taxation years)

MOVING EXPENSES - NEW SALES TERRITORY In a May 12, 2011 Technical Interpretation, CRA reviewed a situation where the employee s sales

GLOBAL MOBILITY ALERT February 2016

Retirement Compensation Arrangement (RCA)

Tax & Estate Planning for Snowbirds

The Presenter. Learning Objectives. Taxes: Making sure you re compliant Understanding your filing and remitting responsibilities as a taxpayer

Tax Tips & Traps IN THIS ISSUE PERSONAL TAX EMPLOYMENT INCOME

Employee or Self-employed?

U.S. Estate Tax For Canadians

10. Absences from Employment

Kurt Rosentreter 2017 Year-End Tax Planning Tips

The Impact of Intent in the Characterization Analysis of a Worker

T4032-QC, Payroll Deductions Tables EI, and income tax deductions Quebec Effective January 1, 2018

Enhancing Canada s International Tax Advantage Submission to the Advisory Panel on Canada s System of International Taxation

MTI NEWSLETTER - TAX TIPS & TRAPS

Preparing for the Implementation of Sections 871(m) and 305(c)

A medical practitioner is a person who is authorized by a province or other jurisdiction to act as a medical practitioner.

TAX NOTES INTERNATIONAL NON-RESIDENT TRUST UPDATE. by Stuart F. Bollefer and Jack Bernstein. Aird & Berlis LLP

Declaration of eligibility for benefits (reduced tax) under a tax treaty for a hybrid entity

Association of Professional Canadian Consultants. The Theory of Integration

SAS (the payer) has the responsibility to comply with the withholding tax provisions and not the non-resident recipient.

Seasonal Agricultural Workers Program

Applebaum Commisso Tax Tips

TAX ELECTION INSTRUCTIONS

2017 Year-End Tax Planning. and. PARTNERS LLP Chartered Professional Accountants

TAX UPDATE. By Marc G. Darmo and Gwendolyn G. Watson. The Advisory Panel on Canada s System of International Taxation released its Final Report:

THIS MATTER REQUIRES YOUR IMMEDIATE ATTENTION. THE DEADLINE TO SUBMIT DOCUMENTS FOR EXECUTION BY TRINIDAD IS JULY 31, 2008.

Cross-Border Employment Issues: Ensuring a Successful Assignment to. Canada

66 th Annual Tax Conference Vancouver 2014

2012 Federal Budget March 29, 2012

Payroll Deductions Supplementary Tables

Interplay between Occupational and Non-Occupational Disability cases. Rob Boswell

Adverse Canada-U.S. Tax Treaty Hybrid Entity Rules Coming into Effect January 1, 2010

Payroll Deductions Supplementary Tables

Payroll Deductions Supplementary Tables

Locator Code: 898A SUBJECT: Directors Liability Section of the Income Tax Act and Section 323 of the Excise Tax Act No.: 89-2R Date: June 27,

Taxable Benefits More Explanation & Examples

Employee Stock Options

Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary

Navigator. Withdrawing surplus cash from a corporation. The. Please contact us for more information about the topics discussed in this article.

Overview Legislative Requirements S. 247 The Role of the Transfer Pricing Review Committee Practical Ways to Avoid Penalties Questions for the CRA

This bulletin cancels and replaces Interpretation Bulletin IT-66R5 dated July 22, Current revisions are designated by vertical lines.

CURRENT ISSUES A SELECTION OF LEGISLATIVE AND ADMINISTRATIVE DEVELOPMENTS OF INTEREST TO THE OWNER-MANAGER

CONCEPT OF BENEFICIAL OWNERSHIP: DISCUSSION OF KEY ISSUES AND PROPOSALS FOR CHANGES TO THE UN MODEL COMMENTARY*

September 2014 TEN COMMON TAX MISTAKES THE TAX COST OF LEAVING (OR LOSING) YOUR JOB WHEN CAN THE CRA NO LONGER REASSESS YOU?

HONG KONG BEPS AND NEW TRANSFER PRICING LAW

Transcription:

Tax Update Employees vs. Independent Contractors and Cross-Border Employment Issues L. David Fox, Partner

Employee vs. Independent Contractor Why Relevant? Due diligence (e.g., purchase agreements) Tax/payroll audit Hiring/change of worker status Termination Personal services business ( PSB ) Potentially serious tax implications: Where CRA finds that independent contractor is actually employee, companies will be subject to significant taxes, penalties and interest CRA may assess individual members of company s Board (jointly and severally) for the income tax, Canada Pension Plan ( CPP ) contributions and Employment Insurance ( EI ) premiums which company was required to withhold and remit, as well as penalties and the interest thereon 2

Employee vs. Independent Contractor? Income Tax Act of limited use in determining whether worker is employee or independent contractor Requires analysis of facts surrounding relationship between worker and company In general, courts and administrative tribunals look at following four factors (Wiebe Door Services Ltd. v. MNR, 87 DTC 5025 (FCA)): level of control exercised by company over manner in which individual provides services; ownership of tools, if any, required to perform services; extent to which individual has chance of profit/risk of loss; and degree to which individual is integrated into company s business Presence or absence of above factors not necessarily determinative Recent court decisions placed more emphasis on legal relationship and common intention of the parties involved (Royal Winnipeg Ballet v. Canada, 2006 FCA 87) Very recent case law has de-emphasized importance of common intention (TBT Personnel Services Inc., 2011 FCA 256) 3

Tax Implications Company would have failed to withhold and remit to the CRA income tax from remuneration paid to the worker CRA could assess the company for penalties (10%) and interest (prescribed rate) Penalties and interest assessed would not be deductible to the company Company would have failed to report (in a T4 information return) the worker s income from employment for each taxation year at issue Penalties could be assessed by CRA in respect of such failure 4

Tax Implications, cont d Company would have failed to properly withhold and remit CPP contributions (employer and employee portions) and EI premiums (employer and employee portions) CRA would assess the company for the employer and employee portions of the CPP contributions and EI premiums which were required to be remitted Interest and penalties (10%) would also be assessed by the CRA Company may be liable for Employer Health Tax, under the Employer Health Tax Act (Ontario) for years at issue if the worker reports to a permanent establishment of the company in Ontario 5

Tax Implications, cont d Possible that CRA may assess individual members of company s Board (jointly and severally) for the following amounts in respect of remuneration paid to the worker in each year at issue: income tax which company was required to withhold and remit, and penalties and interest thereon; employer and employee CPP contributions which company was required to remit, and penalties and interest thereon; and employer and employee EI premiums which company was required to remit, and penalties and interest thereon. Due diligence defence available under ITA, CPPA and EIA 6

Tax Implications, cont d CRA cannot assess the company for GST/HST/QST purposes (as applicable) for services rendered by worker if worker found to be employee From worker s perspective, there could be considerable issues and/or assessments from a GST/HST/QST perspective 7

What Companies Should Do Company should have agreements in place that both confirm and clarify the nature of its relationship with each worker/service provider Where worker is an independent contractor, contracts should include provisions confirming worker s status, detailing how and under what circumstances contractual relationship can be terminated by either party, and an indemnity provision making the worker personally liable for any amounts company and its Board could subsequently be found liable for 8

What Companies Should Do Existence of a contract will not eliminate potential for adverse finding to be made against company. However, will put company in better position to defend itself against claims Worker should invoice company on regular basis for services provided and GST/HST/QST (as applicable) should be collected, reported and remitted by worker on value of all consideration received from company for supply of taxable services Not all workers will be registered for GST/HST/QST Contracts should include specific language to protect companies from liability 9

What Companies Should Do Tax counsel for worker should be consulted by worker in order to confirm the tax requirements and collection, reporting and remitting obligations of the worker as well as potential methods of minimizing risks If worker or payer is not sure of the worker's employment status, either party can request a ruling from CRA to have status determined 10

Personal Services Business Defined in subsection 125(7) of the ITA, in part, as a business carried on by a corporation through which services are provided by an individual who would, but for the existence of the corporation, be considered an employee of the recipient of the services With lower corporate tax rates, PSBs became more popular (deferral opportunities) For tax years beginning after October 31, 2011, PSB tax rate increased to approximately 13% higher than general corporate tax rate Now, taxes payable may be significantly greater than if individual had earned income directly as employee Taxpayers who have PSB should consult with tax advisors Incorporated independent contractors should review all contracts 11

Cross-Border Employment Issues Frequent questions arise Examples: Non-resident company purchases Canadian company and wants to send employees to Canada for short-term assignments (e.g., training, transition, etc.) Non-resident company wants to assign employee with particular skill set to work in Canada on a key project Non-resident company assigns employees to installation project in Canada 12

Cross-Border Employment Issues Potential Canadian income tax issues can arise for non-resident company, non-resident employee and Canadian company if not properly structured Examples: Payroll withholding obligations for non-resident company Non-resident company carrying on business in Canada (tax return filing obligation and potential tax exposure) Non-resident employee creates permanent establishment for non-resident company in Canada (tax exposure) Double withholdings on remuneration Canadian tax reporting requirements for non-resident employee Canadian tax liability for non-resident employee 15% withholding requirements for Canadian resident company 15% withholding requirements for non-resident company (tiered withholding) 13

Cross-Border Employment Issues and Secondment Arrangements Formal transfer of non-resident employee may not be desirable Structuring considerations, including possibility of secondment Secondment-- the temporary assignment of an employee to an entity (receiving employer) carrying on business in Canada, supported by the existence of an employer-employee relationship between the individual and the receiving employer may exist whether or not an employee remains on the payroll of the lending employer, or is transferred to the payroll of the receiving employer (Para. 35 of IC 75-6R2) Properly structured secondment arrangements can minimize tax and compliance problems arising from international business travel 14

Benefits of Secondment Arrangements Secondment arrangements may assist in: helping employer comply with payroll requirements in both Canada and home country; allowing employee to maintain home country benefit plans, even when employee is working in Canada; minimizing risk of application of 15% withholding when Canadian company reimburses non-resident company for services provided by employee in Canada; minimizing risk that non-resident company found to be carrying on business in Canada; and minimizing risk that cross-border employee will create permanent establishment for non-resident company in Canada. 15

Secondment Agreements Written agreement between lending (non-resident) and receiving (Canadian) employers and seconded employee Seconded employee may or may not remain on payroll of lending company (preference is often to remain on home country payroll so as to continue benefits, participate in pension/social security plans) Legal terms-duration (defined), responsibilities, job description, rate of pay, other benefits Canadian company responsible for seconded employee s salary, benefits and withholding and remitting Seconded employee reports to Canadian company in respect of services rendered to Canadian company Seconded employee does not perform duties for lending company in Canada No element of profit included in charge back to Canadian employer by lending employer 16

Taxation of Seconded Employee Non-resident employed in Canada at any time in year subject to Canadian income tax on employment income attributable to employment services rendered in Canada Requirement to file Canadian income tax return Absent waiver, payroll withholding required Requirement to pay Canadian income tax--may be relief under tax treaty, if applicable and depending on circumstances Example Article XV, Canada-US Tax Treaty (assuming inbound employee) remuneration doesn t exceed $CDN10,000; or present in Canada for less than 183 days in any 12 month period and remuneration not paid by, or on behalf of, person who is resident of Canada and not borne by permanent establishment in Canada 17

Example Secondment Arrangement Cdn company (Canco) requires services of an employee (Mr. A) of its US parent company (USCo) USCo seconds Mr. A to Canco Mr. A remains employee of USCo, which continues to pay his salary and benefits USCo, Canco and Mr. A enter into written secondment agreement, under which USCo agrees to second Mr. A to Canco and Canco agrees to reimburse USCo for the portion of Mr. A's compensation related to services rendered in Canada for Canco Reimbursement limited to Canco's expenses (including salary, benefits, and reasonable overhead)--no profit margin Secondment agreement provides that Canco takes full employer responsibilities for Mr. A during his workdays in Canada related to Canco's business. The agreement specifies that USCo is not liable for any actions of Mr. A for these services 18

L. David Fox Partner 416 733 5264 dfox@ccsb-law.com 19