Canada Revenue Agency's Independent Contractor Test
Contact Neufeld Legal PC at 403-400-4092 or Chris@NeufeldLegal.com
The Canada Revenue Agency (CRA) approach to determining whether a worker is an employee (under a contract of service) or a self-employed independent contractor (under a contract for services) is undertaken by an examination of the total working relationship using a multi-factor test, often referred to as the Four-Fold Test or a similar set of criteria.The ultimate question is whether the person is in business on their own account or working as an integral part of the payer's organization. No single factor is conclusive; the CRA weighs all the evidence.
1. Control
This is often considered the most important factor. It examines the degree of control the payer has over the worker's activities.
| Employee Indicator | Independent Contractor Indicator |
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The payer controls what work will be done and how it will be done (e.g., set hours, specific methods, detailed instructions, supervision). |
The worker is free to work when and how they choose, often only accountable for the final result. |
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The worker must ask permission to work for other payers. |
The worker is free to work for multiple clients concurrently. |
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The payer provides training on how to do the work. |
The worker uses their own expertise and methods. |
2. Ownership of Tools and Equipment
This refers to who provides and maintains the assets required to do the work.
| Employee Indicator | Independent Contractor Indicator |
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The payer supplies most of the tools and equipment (e.g., computer, vehicle, specialized tools) and is responsible for their repair and maintenance. |
The worker provides their own tools, equipment, and workspace, and is responsible for all associated costs (insurance, repairs, maintenance). |
3. Chance of Profit / Risk of Loss
This factor assesses the worker's financial exposure and business opportunity.
| Employee Indicator | Independent Contractor Indicator |
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The worker is paid a fixed wage, salary, or hourly rate, guaranteeing a stable income, and is not responsible for operating expenses or losses. |
The worker faces financial risk (e.g., responsible for unreimbursed operating expenses, equipment costs) and has the opportunity to profit (e.g., by negotiating prices, managing costs, taking on more contracts). |
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The worker cannot hire assistants or sub-contract work and has no financial liability if the contract obligations aren't met. |
The worker can hire assistants or sub-contract the work, covering the costs, and may be financially liable for poor work or failing to meet contractual obligations. |
4. Integration (or Total Relationship)
This looks at how essential the worker's role is to the payer's business and the overall nature of the relationship.
| Employee Indicator | Independent Contractor Indicator |
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The work is an integral and ongoing part of the payer's regular business activities. |
The worker's services are only accessory to the payer's business, often limited to a specific task or time frame. |
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The relationship is one of continuity and subordination. |
The relationship is often transactional, project-based, and lacks continuity, loyalty, or security. |
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The worker receives employee-only benefits (e.g., group health plans, pension plans, vacation pay). |
The worker does not receive any employee benefits from the payer. |
While a written contract asserting that the engagement is that of an independent contractor is relevant, the CRA will look at the actual working conditions and the reality of the relationship. The nature of the work relationship always trumps the written contract if they conflict, as such merely papering the working relationship (which remains important), needs to be substantiated by the operational practice as to the working relationship.
Our law firm provides strategic legal advice, review and drafting of independent contractor agreements to both businesses and contractors in Calgary and beyond. Schedule an initial consultation with our law firm to learn more about how our extensive business contract legal experience can benefit your business engagements and contractual arrangements. Call 403-400-4092 or email our law firm at Chris@NeufeldLegal.com today.