Nature of the Relationship

It is essential that you determine whether you are an employer because if you are not an employer, then payroll deductions will not apply to you. An employer/employee relationship usually exists if you have the right to control and direct the person who performs services for you. It is your right to exercise control that is relevant, not whether you actually exercise your right. In general, those who pay wages or salaries to others for the performance of services are considered to be employers by CRA.

The first step is to determine whether the relationship you have with those who work for you is employment as opposed to independent service. Determination of an employment relationship is essentially a question of fact. The Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz, 2001 SCC 59 stated at paragraph 47:

...The central question is whether the person who has been engaged to perform the services is performing them as a person in business on his own account. In making this determination, the level of control the employer has over the worker’s activities will always be a factor. However, other factors to consider include whether the worker provides his or her own equipment, whether the worker hires his or her own helpers, the degree of financial risk taken by the worker, the degree of responsibility for investment and management held by the worker, and the worker’s opportunity for profit in the performance of his or her tasks.

No single factor is determinative, nor is the fact that you choose to structure an arrangement as an independent services contract rather than an employment contract. If you have any doubts about whether an employer/employee relationship exists, you can request a ruling from CRA.

For more information about whether a person is an employee or a contractor, see CRA Form RC4110 “Employee or Self-Employed?” or consult a text like Professor Vern Krishna’s “The Fundamentals of Canadian Income Tax”, 9th ed. (Toronto: Thomson Carswell, 2014).

Another helpful resource from an Alberta point of view is the Alberta Learning Information Service’s Understand the Difference Between Employment and Contracting.

The resources referenced in this Module are not a replacement for a full legal analysis. They are provided solely for your convenience as you assess different issues relating to running your own practice. Every situation should be considered based on all relevant factors and applicable legislation and case law.

Last modified: Friday, 25 August 2023, 2:35 PM