Individuals continuously inquire as to the income tax advantages and disadvantages of Independent Contractor ("IC") status versus Employment status. Accordingly, we have summarized the general issues an individual should consider.

Advantages of IC

Potentially broader range of expense deductions including:

• Deductible interest for operating loans
• Deductible operating expenses (beyond commission income), i.e., you may create a business loss.
• Advertising and promotion.
• Business losses are deductible and may be carried forward seven years and backwards three years.
• You may choose the accrual or cash method of reporting income which allows flexibility (usually one time only).
• Broader capital cost allowance (depreciation).
• No unemployment insurance costs.
• Possibility to pay salaried assistants - income splitting opportunity.
• No income tax deducted at source - quarterly tax installments.
• Business loan opportunities.

Disadvantages of IC

• GST administration
• No participation in employee benefits programs, e.g., group health plans
• Additional expenses:
  • accounting and bookkeeping
  • Employer Health Tax
  • CPP/QPP contributions

Other Considerations

Accounting advice is a must before you set up as an independent contractor.

Please contact us for more details.

The above provides general information only. It should not be regarded or relied upon as accounting or taxation advice or opinions. Logan Katz LLP Chartered Accountants would be pleased to provide more information or specific advice on matters of interest to you.

 

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