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@@ -501,19 +501,42 @@ accomplishment of a clearly defined task but does not normally require that the
party do anything him/herself. A person who carries out a contract for service may be
considered a contract worker, a self-employed person or an independent contractor.
A business relationship is formed when a self-employed individual enters into a verbal or written agreement to complete specific work for a payer in exchange for compensation. This arrangement does not establish an employer-employee relationship; instead, it represents a contract for services.
A business relationship is formed when a self-employed individual enters into a verbal or written agreement to complete
specific work for a payer in exchange for compensation. This arrangement does not establish an employer-employee relationship;
instead, it represents a contract for services.
Under this type of agreement, the self-employed individual is responsible for delivering a final result within an agreed timeframe, using methods of their own choosing. They are not subject to the direction or supervision of the payer while completing the work, and they retain autonomy over how tasks are executed. In most cases, the payer does not participate in or influence the work process, meaning control over the work lies entirely with the self-employed individual. This structure reflects a high level of independence and flexibility, distinguishing it clearly from traditional employment relationships.
Under this type of agreement, the self-employed individual is responsible for delivering a final result within an agreed
timeframe, using methods of their own choosing. They are not subject to the direction or supervision of the payer while
completing the work, and they retain autonomy over how tasks are executed. In most cases, the payer does not participate in
or influence the work process, meaning control over the work lies entirely with the self-employed individual. This structure
reflects a high level of independence and flexibility, distinguishing it clearly from traditional employment relationships.
Under a contract for service, a self-employed individual accepts both the potential for profit and the risk of financial loss. Prior to engagement, the individual agrees on the total cost of the work, uses personal tools and equipment, and assumes full responsibility for how the work is performed. This means the individual bears any unforeseen costs or challenges that arise during the project. Conversely, if the work is completed more efficiently than expected, the financial gain—through retained profits—is greater.
Under a contract for service, a self-employed individual accepts both the potential for profit and the risk of financial loss.
Prior to engagement, the individual agrees on the total cost of the work, uses personal tools and equipment, and assumes full
responsibility for how the work is performed. This means the individual bears any unforeseen costs or challenges that arise
during the project. Conversely, if the work is completed more efficiently than expected, the financial gain—through retained
profits—is greater.
Organizations often utilize contracts for service when they require tasks or projects that fall outside their normal business operations. While the relationship between a payer and a self-employed contractor may resemble that of an employer and employee, there is a key distinction. In a contract for service, the payer specifies the desired outcome or deliverable, but not how the work should be completed. In contrast, a contract of service allows the employer to direct both the tasks and the method by which they are carried out, establishing a more controlled, employee-based relationship.
Organizations often utilize contracts for service when they require tasks or projects that fall outside their normal business
operations. While the relationship between a payer and a self-employed contractor may resemble that of an employer and
employee, there is a key distinction. In a contract for service, the payer specifies the desired outcome or deliverable, but
not how the work should be completed. In contrast, a contract of service allows the employer to direct both the tasks and the
method by which they are carried out, establishing a more controlled, employee-based relationship.
Under a contract for service, the payer exercises general oversight to ensure that the agreed work is completed as specified. However, this oversight does not extend to controlling how the work is performed. The self-employed individual retains autonomy over the methods used to complete the tasks. Receiving general instructions from a project manager or similar representative does not establish an employer-employee relationship.
Under a contract for service, the payer exercises general oversight to ensure that the agreed work is completed as specified.
However, this oversight does not extend to controlling how the work is performed. The self-employed individual retains
autonomy over the methods used to complete the tasks. Receiving general instructions from a project manager or similar
representative does not establish an employer-employee relationship.
An employee-employer relationship is recognized when an organization has the authority to direct and control both the work and the manner in which it is performed. If there is uncertainty about whether such a relationship exists, the Canada Revenue Agency (CRA) recommends submitting Form CPT1 — Request for a CPP/EI Ruling: Employee or Self-Employed? — to obtain clarification. A sample of this form can be found at the end of this section.
An employee-employer relationship is recognized when an organization has the authority to direct and control both the work and
the manner in which it is performed. If there is uncertainty about whether such a relationship exists, the Canada Revenue
Agency (CRA) recommends submitting Form CPT1 — Request for a CPP/EI Ruling: Employee or Self-Employed? — to obtain
clarification. A sample of this form can be found at the end of this section.
Independent contractors or self-employed individuals are not classified as employees if no employer-employee relationship is present. They typically submit invoices and receive payment through accounts payable. However, the act of submitting an invoice alone is not sufficient to confirm self-employment status. Proper assessment of the working relationship is essential to ensure accurate classification and compliance with tax and labor regulations.
Independent contractors or self-employed individuals are not classified as employees if no employer-employee relationship is
present. They typically submit invoices and receive payment through accounts payable. However, the act of submitting an
invoice alone is not sufficient to confirm self-employment status. Proper assessment of the working relationship is essential
sto ensure accurate classification and compliance with tax and labor regulations.
Factors Determining the Type of Contract
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
@@ -554,11 +577,13 @@ worker is an employee or self-employed will be provided.
Control
~~~~~~~
The ability, authority or right to exercise control over a worker concerning how the work is
done and what work is done is one of the factors considered, as is the degree of independence
held by the worker. Both the payer's control over the worker's daily activities and the payer's
influence over the worker will be examined. The relevant factor is the payer's right to
exercise control. Whether the payer actually exercises this right is irrelevant.
One of the key factors in determining a worker's status is the extent to which the payer has the ability, authority, or
right to control both what work is performed and how it is carried out. Equally important is the level of independence the
worker maintains in performing their duties.
In evaluating the relationship, both the payer's oversight of the worker's day-to-day activities and their overall
influence are assessed. However, it is the payer's right to exercise control—rather than whether that control is actively
used—that holds the most weight in determining the nature of the working relationship.
Worker is an *Employee* when:
@@ -578,28 +603,22 @@ Worker is a *Self-Employed* when:
Tools and Equipment
~~~~~~~~~~~~~~~~~~~~
Ownership of tools and equipment is not, in itself, a determining factor relating to
establishing the type of contract in effect. The fact that workers use their own equipment
when performing their work is not sufficient to conclude that they are self-employed.
Self-employed individuals often supply the tools and equipment necessary to complete a
contract, making their ownership commonly associated with a business relationship; however
employees can also be required to provide their own tools.
Ownership of tools and equipment is not a definitive factor in determining the nature of a working relationship or the type
of contract in place. While self-employed individuals often use their own tools to fulfill contractual obligations—making
such ownership common in business relationships—this alone does not confirm self-employment. Employees may also be required
to supply their own tools, depending on the trade or occupation.
In an employee-employer relationship, the employer generally supplies the equipment and
tools required by the employee. In addition, the employer covers the following costs related
to their use: repairs, insurance, transport, rental and operation (for example, fuel).
In typical employee-employer relationships, the employer provides the necessary equipment and assumes the costs associated
with its use, including maintenance, insurance, transportation, rental fees, and operational expenses such as fuel. However,
in certain industries—such as automotive repair, painting, carpentry, and technical fields like software development or
surveying—it is standard practice for employees to use their own tools or specialized instruments.
In some trades, however, it is normal for employees to supply their own tools. This is
generally the case for auto mechanics, painters and carpenters. Similarly, employed computer
scientists, architects and surveyors sometimes supply their own software and instruments.
In contrast, self-employed individuals not only supply their own equipment but also bear the associated costs. Significant
financial investment in tools—especially those that require ongoing maintenance or replacement—can suggest a business
relationship, as these individuals assume both the potential for profit and the risk of loss.
In a business relationship, workers generally supply their own equipment and tools and cover
costs related to their use. When workers purchase or rent equipment or large tools that
require a major investment and costly maintenance, it usually indicates that they are selfemployed individuals as they may incur a financial loss when replacing or repairing their
equipment.
The relevance of the ownership of tools and equipment is in the size of the investment along
with the cost of repair, replacement and insurance.
Ultimately, the key consideration is the scale of the investment and the financial responsibility related to repairs,
replacement, and insurance, rather than mere ownership itself.
The worker is an employee when:
@@ -615,7 +634,8 @@ The worker is a self-employed individual when:
Subcontracting Work or Hiring Assistants
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
As subcontracting work or hiring assistants can affect a worker's chance of profit or risk of loss, this can help determine the type of business relationship.
As subcontracting work or hiring assistants can affect a worker's chance of profit or risk of loss, this can help determine
the type of business relationship.
The worker is an employee when:
@@ -630,13 +650,9 @@ The worker is a self-employed individual when:
Financial Risk
~~~~~~~~~~~~~~
The CRA will examine if there are any fixed ongoing costs incurred by the worker or any
expenses that are not reimbursed. Employers will usually reimburse employees for any
expenses incurred in the performance of their job. Self-employed individuals can have
financial risk and incur losses as they usually have ongoing monthly expenses whether or not
work is being performed. Both employees and self-employed individuals may be reimbursed
for business or travel expenses, however it is the expenses that are not reimbursed that are
examined.
When evaluating the nature of a working relationship, the Canada Revenue Agency (CRA) considers whether the individual incurs fixed, ongoing costs or unreimbursed expenses. In traditional employee arrangements, employers typically reimburse expenses that arise as part of the job—for example, travel or business-related costs.
In contrast, self-employed individuals often assume greater financial risk by covering recurring operational costs regardless of whether active work is being performed. These may include equipment leasing, office space rental, or other business overheads. While both employees and contractors may receive reimbursement for certain expenses, the CRA places particular emphasis on identifying costs that are not reimbursed. The presence of such expenses may indicate a business relationship, reflecting the independence and financial responsibility characteristic of self-employment.
The worker is an employee when:

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@@ -473,13 +473,36 @@ specific work stipulated in the contract for another party. It usually calls for
accomplishment of a clearly defined task but does not normally require that the contracting
party do anything him/herself. A person who carries out a contract for service may be
considered a contract worker, a self-employed person or an independent contractor.</p>
<p>A business relationship is formed when a self-employed individual enters into a verbal or written agreement to complete specific work for a payer in exchange for compensation. This arrangement does not establish an employer-employee relationship; instead, it represents a contract for services.</p>
<p>Under this type of agreement, the self-employed individual is responsible for delivering a final result within an agreed timeframe, using methods of their own choosing. They are not subject to the direction or supervision of the payer while completing the work, and they retain autonomy over how tasks are executed. In most cases, the payer does not participate in or influence the work process, meaning control over the work lies entirely with the self-employed individual. This structure reflects a high level of independence and flexibility, distinguishing it clearly from traditional employment relationships.</p>
<p>Under a contract for service, a self-employed individual accepts both the potential for profit and the risk of financial loss. Prior to engagement, the individual agrees on the total cost of the work, uses personal tools and equipment, and assumes full responsibility for how the work is performed. This means the individual bears any unforeseen costs or challenges that arise during the project. Conversely, if the work is completed more efficiently than expected, the financial gain—through retained profits—is greater.</p>
<p>Organizations often utilize contracts for service when they require tasks or projects that fall outside their normal business operations. While the relationship between a payer and a self-employed contractor may resemble that of an employer and employee, there is a key distinction. In a contract for service, the payer specifies the desired outcome or deliverable, but not how the work should be completed. In contrast, a contract of service allows the employer to direct both the tasks and the method by which they are carried out, establishing a more controlled, employee-based relationship.</p>
<p>Under a contract for service, the payer exercises general oversight to ensure that the agreed work is completed as specified. However, this oversight does not extend to controlling how the work is performed. The self-employed individual retains autonomy over the methods used to complete the tasks. Receiving general instructions from a project manager or similar representative does not establish an employer-employee relationship.</p>
<p>An employee-employer relationship is recognized when an organization has the authority to direct and control both the work and the manner in which it is performed. If there is uncertainty about whether such a relationship exists, the Canada Revenue Agency (CRA) recommends submitting Form CPT1 — Request for a CPP/EI Ruling: Employee or Self-Employed? — to obtain clarification. A sample of this form can be found at the end of this section.</p>
<p>Independent contractors or self-employed individuals are not classified as employees if no employer-employee relationship is present. They typically submit invoices and receive payment through accounts payable. However, the act of submitting an invoice alone is not sufficient to confirm self-employment status. Proper assessment of the working relationship is essential to ensure accurate classification and compliance with tax and labor regulations.</p>
<p>A business relationship is formed when a self-employed individual enters into a verbal or written agreement to complete
specific work for a payer in exchange for compensation. This arrangement does not establish an employer-employee relationship;
instead, it represents a contract for services.</p>
<p>Under this type of agreement, the self-employed individual is responsible for delivering a final result within an agreed
timeframe, using methods of their own choosing. They are not subject to the direction or supervision of the payer while
completing the work, and they retain autonomy over how tasks are executed. In most cases, the payer does not participate in
or influence the work process, meaning control over the work lies entirely with the self-employed individual. This structure
reflects a high level of independence and flexibility, distinguishing it clearly from traditional employment relationships.</p>
<p>Under a contract for service, a self-employed individual accepts both the potential for profit and the risk of financial loss.
Prior to engagement, the individual agrees on the total cost of the work, uses personal tools and equipment, and assumes full
responsibility for how the work is performed. This means the individual bears any unforeseen costs or challenges that arise
during the project. Conversely, if the work is completed more efficiently than expected, the financial gain—through retained
profits—is greater.</p>
<p>Organizations often utilize contracts for service when they require tasks or projects that fall outside their normal business
operations. While the relationship between a payer and a self-employed contractor may resemble that of an employer and
employee, there is a key distinction. In a contract for service, the payer specifies the desired outcome or deliverable, but
not how the work should be completed. In contrast, a contract of service allows the employer to direct both the tasks and the
method by which they are carried out, establishing a more controlled, employee-based relationship.</p>
<p>Under a contract for service, the payer exercises general oversight to ensure that the agreed work is completed as specified.
However, this oversight does not extend to controlling how the work is performed. The self-employed individual retains
autonomy over the methods used to complete the tasks. Receiving general instructions from a project manager or similar
representative does not establish an employer-employee relationship.</p>
<p>An employee-employer relationship is recognized when an organization has the authority to direct and control both the work and
the manner in which it is performed. If there is uncertainty about whether such a relationship exists, the Canada Revenue
Agency (CRA) recommends submitting Form CPT1 — Request for a CPP/EI Ruling: Employee or Self-Employed? — to obtain
clarification. A sample of this form can be found at the end of this section.</p>
<p>Independent contractors or self-employed individuals are not classified as employees if no employer-employee relationship is
present. They typically submit invoices and receive payment through accounts payable. However, the act of submitting an
invoice alone is not sufficient to confirm self-employment status. Proper assessment of the working relationship is essential
sto ensure accurate classification and compliance with tax and labor regulations.</p>
</section>
<section id="factors-determining-the-type-of-contract">
<h3><span class="section-number">4.6.3. </span>Factors Determining the Type of Contract<a class="headerlink" href="#factors-determining-the-type-of-contract" title="Link to this heading"></a></h3>
@@ -518,11 +541,12 @@ worker is an employee or self-employed will be provided.</p>
</section>
<section id="control">
<h3><span class="section-number">4.6.4. </span>Control<a class="headerlink" href="#control" title="Link to this heading"></a></h3>
<p>The ability, authority or right to exercise control over a worker concerning how the work is
done and what work is done is one of the factors considered, as is the degree of independence
held by the worker. Both the payer’s control over the worker’s daily activities and the payer’s
influence over the worker will be examined. The relevant factor is the payer’s right to
exercise control. Whether the payer actually exercises this right is irrelevant.</p>
<p>One of the key factors in determining a worker’s status is the extent to which the payer has the ability, authority, or
right to control both what work is performed and how it is carried out. Equally important is the level of independence the
worker maintains in performing their duties.</p>
<p>In evaluating the relationship, both the payer’s oversight of the worker’s day-to-day activities and their overall
influence are assessed. However, it is the payer’s right to exercise control—rather than whether that control is actively
used—that holds the most weight in determining the nature of the working relationship.</p>
<p>Worker is an <em>Employee</em> when:</p>
<blockquote>
<div><ul class="simple">
@@ -545,24 +569,19 @@ exercise control. Whether the payer actually exercises this right is irrelevant.
</section>
<section id="tools-and-equipment">
<h3><span class="section-number">4.6.5. </span>Tools and Equipment<a class="headerlink" href="#tools-and-equipment" title="Link to this heading"></a></h3>
<p>Ownership of tools and equipment is not, in itself, a determining factor relating to
establishing the type of contract in effect. The fact that workers use their own equipment
when performing their work is not sufficient to conclude that they are self-employed.
Self-employed individuals often supply the tools and equipment necessary to complete a
contract, making their ownership commonly associated with a business relationship; however
employees can also be required to provide their own tools.</p>
<p>In an employee-employer relationship, the employer generally supplies the equipment and
tools required by the employee. In addition, the employer covers the following costs related
to their use: repairs, insurance, transport, rental and operation (for example, fuel).</p>
<p>In some trades, however, it is normal for employees to supply their own tools. This is
generally the case for auto mechanics, painters and carpenters. Similarly, employed computer
scientists, architects and surveyors sometimes supply their own software and instruments.</p>
<p>In a business relationship, workers generally supply their own equipment and tools and cover
costs related to their use. When workers purchase or rent equipment or large tools that
require a major investment and costly maintenance, it usually indicates that they are selfemployed individuals as they may incur a financial loss when replacing or repairing their
equipment.</p>
<p>The relevance of the ownership of tools and equipment is in the size of the investment along
with the cost of repair, replacement and insurance.</p>
<p>Ownership of tools and equipment is not a definitive factor in determining the nature of a working relationship or the type
of contract in place. While self-employed individuals often use their own tools to fulfill contractual obligations—making
such ownership common in business relationships—this alone does not confirm self-employment. Employees may also be required
to supply their own tools, depending on the trade or occupation.</p>
<p>In typical employee-employer relationships, the employer provides the necessary equipment and assumes the costs associated
with its use, including maintenance, insurance, transportation, rental fees, and operational expenses such as fuel. However,
in certain industries—such as automotive repair, painting, carpentry, and technical fields like software development or
surveying—it is standard practice for employees to use their own tools or specialized instruments.</p>
<p>In contrast, self-employed individuals not only supply their own equipment but also bear the associated costs. Significant
financial investment in tools—especially those that require ongoing maintenance or replacement—can suggest a business
relationship, as these individuals assume both the potential for profit and the risk of loss.</p>
<p>Ultimately, the key consideration is the scale of the investment and the financial responsibility related to repairs,
replacement, and insurance, rather than mere ownership itself.</p>
<p>The worker is an employee when:</p>
<blockquote>
<div><ul class="simple">
@@ -581,7 +600,8 @@ with the cost of repair, replacement and insurance.</p>
</section>
<section id="subcontracting-work-or-hiring-assistants">
<h3><span class="section-number">4.6.6. </span>Subcontracting Work or Hiring Assistants<a class="headerlink" href="#subcontracting-work-or-hiring-assistants" title="Link to this heading"></a></h3>
<p>As subcontracting work or hiring assistants can affect a worker’s chance of profit or risk of loss, this can help determine the type of business relationship.</p>
<p>As subcontracting work or hiring assistants can affect a worker’s chance of profit or risk of loss, this can help determine
the type of business relationship.</p>
<p>The worker is an employee when:</p>
<blockquote>
<div><ul class="simple">
@@ -599,13 +619,8 @@ with the cost of repair, replacement and insurance.</p>
</section>
<section id="financial-risk">
<h3><span class="section-number">4.6.7. </span>Financial Risk<a class="headerlink" href="#financial-risk" title="Link to this heading"></a></h3>
<p>The CRA will examine if there are any fixed ongoing costs incurred by the worker or any
expenses that are not reimbursed. Employers will usually reimburse employees for any
expenses incurred in the performance of their job. Self-employed individuals can have
financial risk and incur losses as they usually have ongoing monthly expenses whether or not
work is being performed. Both employees and self-employed individuals may be reimbursed
for business or travel expenses, however it is the expenses that are not reimbursed that are
examined.</p>
<p>When evaluating the nature of a working relationship, the Canada Revenue Agency (CRA) considers whether the individual incurs fixed, ongoing costs or unreimbursed expenses. In traditional employee arrangements, employers typically reimburse expenses that arise as part of the job—for example, travel or business-related costs.</p>
<p>In contrast, self-employed individuals often assume greater financial risk by covering recurring operational costs regardless of whether active work is being performed. These may include equipment leasing, office space rental, or other business overheads. While both employees and contractors may receive reimbursement for certain expenses, the CRA places particular emphasis on identifying costs that are not reimbursed. The presence of such expenses may indicate a business relationship, reflecting the independence and financial responsibility characteristic of self-employment.</p>
<p>The worker is an employee when:</p>
<blockquote>
<div><ul class="simple">

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@@ -1,4 +1,4 @@
# Sphinx build info version 1
# This file records the configuration used when building these files. When it is not found, a full rebuild will be done.
config: f34f1a9962ba88a5f711df83651a645a
config: b0e0134e42e0e7e5adc58e1c8f1452fe
tags: 62a1e7829a13fc7881b6498c52484ec0

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@@ -1587,19 +1587,13 @@ information slips issued at year-end to validate the amounts of CPP contribution
</a>
</h3>
<p>
In all situations, it is necessary to establish whether the relationship between the worker and
the organization is one of an employee and an employer or if the worker is self-employed.
This relationship determines the requirement for statutory withholdings and the requirement
for compliance with related legislation. The Canada Revenue Agency (CRA) has established
factors to assist in determining whether or not this relationship exists. It is not up to the
worker to decide whether or not they are an employee, subject to statutory withholdings.
Determining the nature of the working relationship between an individual and an organization is essential in all employment situations. Whether the individual is classified as an employee or self-employed directly affects the statutory withholding requirements and the organization&rsquo;s compliance with applicable legislation. To support this assessment, the Canada Revenue Agency (CRA) provides a set of guidelines designed to help distinguish between the two classifications. Importantly, the decision is not made by the worker but must be based on objective criteria and legal standards.
</p>
<p>
Payroll can take a proactive role in communicating the importance of determining the
existence of the employee-employer relationship to all areas of the organization.
When an employee-employer relationship exists, payroll has a compliance responsibility
related to statutory withholdings, which requires that all employees have the appropriate
statutory deductions withheld from their pay and remitted to the government.
Payroll practitioners play an important role in promoting awareness of this distinction throughout the organization. By proactively communicating the significance of establishing a valid employee-employer relationship, payroll professionals help ensure that employment classifications are accurate and compliant.
</p>
<p>
Once an employee-employer relationship is confirmed, the payroll department becomes responsible for meeting compliance obligations related to statutory withholdings. This includes deducting the appropriate amounts&mdash;such as income tax, Canada Pension Plan contributions, and Employment Insurance premiums&mdash;from employee pay and remitting them to the government within the required timelines. Proper classification and adherence to these rules are key to maintaining legal and financial accountability.
</p>
<p>
Where an employee-employer relationship exists, the CRA requires the employer to:
@@ -1683,56 +1677,48 @@ party do anything him/herself. A person who carries out a contract for service m
considered a contract worker, a self-employed person or an independent contractor.
</p>
<p>
A business relationship is a verbal or written agreement in which a self-employed individual
agrees to perform specific work for a payer in return for payment. There is no employer or
employee. The self-employed individual generally does not have to carry out all or even part
of the work himself. In this type of business relationship, a contract for services exists.
A business relationship is formed when a self-employed individual enters into a verbal or written agreement to complete
specific work for a payer in exchange for compensation. This arrangement does not establish an employer-employee relationship;
instead, it represents a contract for services.
</p>
<p>
The self-employed individual is required to produce a given result within a period of time in
the manner he deems most appropriate. While performing the work, he is not under the
orders or control of the person for whom he is doing the work and he can use his own
initiative in matters that are not specified or determined at the outset. The payer is not
normally involved in the performance of the work and, therefore, has no control over it.
Under this type of agreement, the self-employed individual is responsible for delivering a final result within an agreed
timeframe, using methods of their own choosing. They are not subject to the direction or supervision of the payer while
completing the work, and they retain autonomy over how tasks are executed. In most cases, the payer does not participate in
or influence the work process, meaning control over the work lies entirely with the self-employed individual. This structure
reflects a high level of independence and flexibility, distinguishing it clearly from traditional employment relationships.
</p>
<p>
Under a contract for service, a self-employed individual assumes the chance of profit and risk
of loss. By agreeing, before he is engaged, to establish the overall cost of the work to be
done, owning his tools and instruments and being solely responsible for the manner in which
the work is done, the self-employed individual assumes all risk of loss resulting from events
that occur during the course of the work which were not, or could not, be foreseen when the
contract was negotiated. If, on the other hand, the work is completed sooner or more easily
than expected, the contractor&rsquo;s profit will be greater.
Under a contract for service, a self-employed individual accepts both the potential for profit and the risk of financial loss.
Prior to engagement, the individual agrees on the total cost of the work, uses personal tools and equipment, and assumes full
responsibility for how the work is performed. This means the individual bears any unforeseen costs or challenges that arise
during the project. Conversely, if the work is completed more efficiently than expected, the financial gain&mdash;through retained
profits&mdash;is greater.
</p>
<p>
A contract for service is often used when an organization wishes to have work done which
does not fall within its usual scope of operations. The relationship between a payer and a
self-employed individual and that between an employer and their employees are sometimes
quite similar. The main difference between the two relationships is that, in a contract for
service, the party paying for the service is entitled to dictate what is to be done or what result
is to be achieved; whereas, in a contract of service, the employer is also entitled to stipulate
the manner in which the work is to be done.
Organizations often utilize contracts for service when they require tasks or projects that fall outside their normal business
operations. While the relationship between a payer and a self-employed contractor may resemble that of an employer and
employee, there is a key distinction. In a contract for service, the payer specifies the desired outcome or deliverable, but
not how the work should be completed. In contrast, a contract of service allows the employer to direct both the tasks and the
method by which they are carried out, establishing a more controlled, employee-based relationship.
</p>
<p>
Under a contract for service, the person for whom the work is being done exercises general
supervision. He can and should see that the work is completed in accordance with the
agreement, but it is not up to him to give orders to the self-employed individual regarding the
manner in which the work is to be done. The mere fact that a self-employed individual
receives general instructions from the project manager concerning the work to be done does
not mean that he can be considered an employee.
Under a contract for service, the payer exercises general oversight to ensure that the agreed work is completed as specified.
However, this oversight does not extend to controlling how the work is performed. The self-employed individual retains
autonomy over the methods used to complete the tasks. Receiving general instructions from a project manager or similar
representative does not establish an employer-employee relationship.
</p>
<p>
An employee-employer relationship is deemed to exist where the organization exercises, or
has the right to exercise, direct control over the individual. If the organization is unsure as to
whether or not a relationship exists, the Canada Revenue Agency (CRA) form Request for a
CPP/EI Ruling - Employee or Self-Employed? - CPT1 should be submitted to the CRA. A
sample of the CPT1 form is provided at the end of this section.
An employee-employer relationship is recognized when an organization has the authority to direct and control both the work and
the manner in which it is performed. If there is uncertainty about whether such a relationship exists, the Canada Revenue
Agency (CRA) recommends submitting Form CPT1 &mdash; Request for a CPP/EI Ruling: Employee or Self-Employed? &mdash; to obtain
clarification. A sample of this form can be found at the end of this section.
</p>
<p>
Independent contractors or self-employed individuals are not considered employees of the
organization provided no employee-employer relationship exists. Persons who are truly selfemployed individuals will submit invoices and be paid through accounts payable. However,
the submission of an invoice to accounts payable is not sufficient to determine if the
individual is self-employed.
Independent contractors or self-employed individuals are not classified as employees if no employer-employee relationship is
present. They typically submit invoices and receive payment through accounts payable. However, the act of submitting an
invoice alone is not sufficient to confirm self-employment status. Proper assessment of the working relationship is essential
sto ensure accurate classification and compliance with tax and labor regulations.
</p>
</section>
<section id="factors-determining-the-type-of-contract">
@@ -1825,11 +1811,14 @@ worker is an employee or self-employed will be provided.
</a>
</h4>
<p>
The ability, authority or right to exercise control over a worker concerning how the work is
done and what work is done is one of the factors considered, as is the degree of independence
held by the worker. Both the payer&rsquo;s control over the worker&rsquo;s daily activities and the payer&rsquo;s
influence over the worker will be examined. The relevant factor is the payer&rsquo;s right to
exercise control. Whether the payer actually exercises this right is irrelevant.
One of the key factors in determining a worker&rsquo;s status is the extent to which the payer has the ability, authority, or
right to control both what work is performed and how it is carried out. Equally important is the level of independence the
worker maintains in performing their duties.
</p>
<p>
In evaluating the relationship, both the payer&rsquo;s oversight of the worker&rsquo;s day-to-day activities and their overall
influence are assessed. However, it is the payer&rsquo;s right to exercise control&mdash;rather than whether that control is actively
used&mdash;that holds the most weight in determining the nature of the working relationship.
</p>
<p>
Worker is an
@@ -1911,32 +1900,25 @@ exercise control. Whether the payer actually exercises this right is irrelevant.
</a>
</h4>
<p>
Ownership of tools and equipment is not, in itself, a determining factor relating to
establishing the type of contract in effect. The fact that workers use their own equipment
when performing their work is not sufficient to conclude that they are self-employed.
Self-employed individuals often supply the tools and equipment necessary to complete a
contract, making their ownership commonly associated with a business relationship; however
employees can also be required to provide their own tools.
Ownership of tools and equipment is not a definitive factor in determining the nature of a working relationship or the type
of contract in place. While self-employed individuals often use their own tools to fulfill contractual obligations&mdash;making
such ownership common in business relationships&mdash;this alone does not confirm self-employment. Employees may also be required
to supply their own tools, depending on the trade or occupation.
</p>
<p>
In an employee-employer relationship, the employer generally supplies the equipment and
tools required by the employee. In addition, the employer covers the following costs related
to their use: repairs, insurance, transport, rental and operation (for example, fuel).
In typical employee-employer relationships, the employer provides the necessary equipment and assumes the costs associated
with its use, including maintenance, insurance, transportation, rental fees, and operational expenses such as fuel. However,
in certain industries&mdash;such as automotive repair, painting, carpentry, and technical fields like software development or
surveying&mdash;it is standard practice for employees to use their own tools or specialized instruments.
</p>
<p>
In some trades, however, it is normal for employees to supply their own tools. This is
generally the case for auto mechanics, painters and carpenters. Similarly, employed computer
scientists, architects and surveyors sometimes supply their own software and instruments.
In contrast, self-employed individuals not only supply their own equipment but also bear the associated costs. Significant
financial investment in tools&mdash;especially those that require ongoing maintenance or replacement&mdash;can suggest a business
relationship, as these individuals assume both the potential for profit and the risk of loss.
</p>
<p>
In a business relationship, workers generally supply their own equipment and tools and cover
costs related to their use. When workers purchase or rent equipment or large tools that
require a major investment and costly maintenance, it usually indicates that they are selfemployed individuals as they may incur a financial loss when replacing or repairing their
equipment.
</p>
<p>
The relevance of the ownership of tools and equipment is in the size of the investment along
with the cost of repair, replacement and insurance.
Ultimately, the key consideration is the scale of the investment and the financial responsibility related to repairs,
replacement, and insurance, rather than mere ownership itself.
</p>
<p>
The worker is an employee when:
@@ -1990,7 +1972,8 @@ with the cost of repair, replacement and insurance.
</a>
</h4>
<p>
As subcontracting work or hiring assistants can affect a worker&rsquo;s chance of profit or risk of loss, this can help determine the type of business relationship.
As subcontracting work or hiring assistants can affect a worker&rsquo;s chance of profit or risk of loss, this can help determine
the type of business relationship.
</p>
<p>
The worker is an employee when:
@@ -2039,13 +2022,10 @@ with the cost of repair, replacement and insurance.
</a>
</h4>
<p>
The CRA will examine if there are any fixed ongoing costs incurred by the worker or any
expenses that are not reimbursed. Employers will usually reimburse employees for any
expenses incurred in the performance of their job. Self-employed individuals can have
financial risk and incur losses as they usually have ongoing monthly expenses whether or not
work is being performed. Both employees and self-employed individuals may be reimbursed
for business or travel expenses, however it is the expenses that are not reimbursed that are
examined.
When evaluating the nature of a working relationship, the Canada Revenue Agency (CRA) considers whether the individual incurs fixed, ongoing costs or unreimbursed expenses. In traditional employee arrangements, employers typically reimburse expenses that arise as part of the job&mdash;for example, travel or business-related costs.
</p>
<p>
In contrast, self-employed individuals often assume greater financial risk by covering recurring operational costs regardless of whether active work is being performed. These may include equipment leasing, office space rental, or other business overheads. While both employees and contractors may receive reimbursement for certain expenses, the CRA places particular emphasis on identifying costs that are not reimbursed. The presence of such expenses may indicate a business relationship, reflecting the independence and financial responsibility characteristic of self-employment.
</p>
<p>
The worker is an employee when: