# Work for Cheque without tax deduction



## Rexkh (Mar 15, 2015)

Hi

One of my close friend has a problem that he don't understand because he is a new immigrant to Canada. He found a job with an agent who take him to work for other company but he get paid by agent, not company. Problem is, he get cheque without tax deduction (Net paid). The question is, is it legal or illegal to get a cheque without tax deduction?


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## wendi1 (Oct 2, 2013)

If he is a contractor, he gets a cheque without a Federal Income Tax or Canada Pension Plan or Employment Insurance deduction. 

If he is an employee of the agent, all those deductions should be made and sent to the Canada Revenue Agency by the agent.


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## humble_pie (Jun 7, 2009)

it's legal to receive such a cheque for work performed as long as your friend is able to keep records of such cheques & eventually declare them as revenue to the CRA & any provincial income tax authority. He would be filing as self-employed. There can be advantages to this, but he will have to make his own pension & employment contributions (on the tax return or the quarterly instalments, not before.)

in this case, it does sound as if the "agent" is perhaps a little bit dodgy.


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## Eclectic12 (Oct 20, 2010)

Question is ... what is his employment status?

If he is an employee, regardless of who is paying him ... there should be deductions for CPP, EI and income tax at minimum.

If he is self-employed or a contractor, there should be some sort of agreement contract or agreement with whichever is paying him. On the up side, in this situation he has more deductions that can be claimed than a regular employee. On the down side, instead of whoever he is working for taking care of income tax (and possibly CPP), he has to.

http://www.taxtips.ca/personaltax/employees/employeevscontractor.htm


It is a strange structure to have agent paying him ... unless the agent is really a temporary staffing agency. For example, a nurse may be an employee of an agency that has the nurse working at a couple of different retirement homes.


Cheers


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## Jaberwock (Aug 22, 2012)

It is common practice in many industries. Certainly in the industry in which I was employed for over 40 years, we always had a mix of staff and agency people. The agencies sometimes paid EI and CPP for their "employees" but never deducted taxes. Agency people were never paid for vacations or statutory holidays, and could be fired at a moments notice with no repercussions to the real employer.

I don't know how they get away with it, but it has been going on for a long time with no apparent action on the part of the CRA.

Your friend will have to pay taxes at the year end, and will be hit next year with having to pay those taxes in installments, or be hit with interest charges. He is no better off than he would be if the agency deducted those taxes from his pay cheque.


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## Eclectic12 (Oct 20, 2010)

Interesting ... most of the work situations I've been in where I have been party to the bills, the agency supplied the worker and was making all the deductions (income tax, CPP, EI, benefits etc.) as the worker was the agency's employee.

The few I can recall who weren't deducting were things like a company who was on the gov't shortlist of preferred contractors where the person providing the labour was a contractor. The agency took their cut then the rest was passed without deductions to the contractor.

I guess it depends on the industry and position


As for "no better off" ... YMMV. Some like having someone else figure out and send off the income tax and some don't ... just like some prefer being an employee while others prefer being a contractor.


Cheers


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## Rexkh (Mar 15, 2015)

It's complicated. What would happen if he keep getting the cheque and depositing it in his bank till the end of year?


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## Spudd (Oct 11, 2011)

It's probably fine. He can keep depositing it but tell him to make sure he saves aside enough to pay taxes in April.


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## Rexkh (Mar 15, 2015)

Well, what kind of income which he will have to declare at tax day? and how many percent he's going to pay for tax?


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## Spudd (Oct 11, 2011)

He'll have to declare all his income. He should ask his agent if he should declare it as self-employment income or employment income. The percent for tax depends on how much he makes. 

You can see the tax rates here - choose the appropriate province: http://www.taxtips.ca/marginaltaxrates.htm


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## Mike-RetireEarly (Feb 28, 2016)

If the agency is not paying his EI, CPP or taxes, then I would think he being treated like a contractor who has to handle all of that himself. Although he most likely doesn't need to pay EI, if he's considered a contractor or his own employer then he cannot collect EI. If the agency was paying it then he should be receiving a pay slip with that info.

There is also the matter of HST/GST that he should be charging, his pay may include an amount for it. He really needs to read the contract he signed, I'd think that he has one because the agency would want to include a Do Not Compete clause. Most likely the CRA would want him to pay the taxes and CPP monthly or quarterly.

You should start with reviewing the contract with your friend or have him consult a lawyer. If there's no contract then he should have some sort of documents from the agency.


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## Rexkh (Mar 15, 2015)

If my friend want to declare it as self employment income at tax day, what do he need? And do he pays less tax if he declare as self employment income?


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## Mike-RetireEarly (Feb 28, 2016)

The CRA website has info forself-employed or corporations. In IT, the business I'm in, the agencies usually insist that the contractors have a corporation. In either case he will need a business number as well as payroll and GST/HST accounts with CRA.


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## Rexkh (Mar 15, 2015)

In my friend case, he doesn't own a business. Does it means that he can't declare as self employment, doesn't it?


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## Spudd (Oct 11, 2011)

Tell your friend to discuss this with his agency. They should be able to answer all his questions.

If he is working as a contractor (i.e. not getting EI, CPP, income tax taken off his cheques) then he does own a business and his business is himself doing this work. You don't need to register a business to be considered as self-employed. 

For self-employed you need to pay both the employer and employee parts of CPP, but you don't need to pay EI. I think it works out to higher taxes than if you are an employee.

Also as Mike-RetireEarly mentioned, if your friend makes over 30k per year, he will need to register for an HST number and charge HST. 

But really he needs to speak to his agency and find out all these details from them. They are in the best position to explain everything.


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## Rexkh (Mar 15, 2015)

I have a question for myself too. If one of my friend, he has no time and he ask me to deep clean his house and give me a cheque. Can I declare that cheque and what kind of declaration?


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## Spudd (Oct 11, 2011)

Rexkh said:


> I have a question for myself too. If one of my friend, he has no time and he ask me to deep clean his house and give me a cheque. Can I declare that cheque and what kind of declaration?


Yes, you would declare it as "other income".


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## Rexkh (Mar 15, 2015)

So, for my friend case, can he declare as Other income?


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## Joe Black (Aug 3, 2015)

Rexkh said:


> So, for my friend case, can he declare as Other income?


No, that's meant for misc. income that doesn't fit into any other category. Your friend is either an employee or he is running regular business. If the latter, it is probably better to be a business so he can deduct his expenses, which I don't think you can do for "Other Income" (I'm not 100% sure, however).


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## Rexkh (Mar 15, 2015)

News updated for my friend case, he got his pay stub from agent who he works for, but something is unusual. The deduction is much less than the previous company he works for. I compare his pay stub from the previous company with the current one. The previous one, he pays 5 things, Employment Insurance, The Quebec Pension Plan, Quebec Parental Insurance Plan, Federal Tax and Quebec Tax. The current one, he pays only 3 things, all except Federal and Quebec Tax. How is it?


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## Spudd (Oct 11, 2011)

Seriously, tell him to ask his agent. Why are you bothering to post about your friend's situation for him? Either he should ask his agent or he should come here and post his questions himself (and we will probably tell him to ask his agent).


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