# Taxes as an Independent Contractor hired via University Co-Op while still a student?



## ezri (Feb 17, 2017)

Hey everyone! First time poster here! I'll try and keep my question brief.

So in January 2016 I began an 8-month Co-Op work placement through my university at a testing company. They employed me as an Independent Contractor so they did not deduct any taxes. All together, I made $17,436. I know that I will have to pay the taxes for that amount, but I have no idea how to go about it since: 

- I was technically still a full-time student, paying tuition fees for the Co-Op placement.
- My employment situation does not really follow the CRA guidelines for an Independent Contractor (my employer provided all my tools as I worked in a typical 9-5 office, employer directed/supervised the training/work that I did, I had no control over my hours or pay, I was an integrated part of the company).
- I have no expenses, no business name, no GST number, investors, etc. I read many "Employee or Independent Contractor?" articles and I have zero qualities that would make me an independent contractor, let alone self-employed. Minus the CPP/EI/Income tax situation, I fall into the "employee" category.

I usually just file my taxes through Turbo Tax, but this entire situation is giving me a headache. While I understand that I'll have to pay some taxes, I really don't think my situation calls for paying thousands of dollars in taxes since I was a student the entire time (TurboTax was giving me a ~$4000+ owed figure.......). I'm assuming I'll probably have to pay an accountant this year? What should I expect to pay in taxes?

One more confusing tidbit: I also have leftover carry-forward amounts from previous years of tuition (~$25,000 worth). Shouldn't this lower my taxes owed amount, too? 

Any help you can give me would be greatly appreciated! Thanks everyone


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## RussT (Jul 11, 2016)

I'm not an expert, but I have a few observations...

1. If this was your only income for the year I can't see how you would owe $4,000. I suspect there is something entered incorrectly in TurboTax.
2. TurboTax is likely calculating CPP and EI contributions since these amounts were not deducted at source. This would be part of the $4,000 amount.
3. I believe CRA will assess your employer their share of the CPP and EI contributions.
4. You should let your co-op department know that the employer treated you like an independent contractor. This may violate the university policy. Otherwise you should have been informed when the opportunity was presented to you.

There are others on this forum who know a lot more than I do who will likely confirm or correct my observations.


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## OhGreatGuru (May 24, 2009)

Yeah, your "employer" probably treated you as a contractor for their convenience, not yours. However, sometimes finding coop partners is difficult if they aren't allowed to treat you this way.

In any case, report your employment under Line 104 - Other Employment Income, and include a note as to what it was from. 

As others have said, if this was your only income ($17,436), and you have various tuition and education amounts you can deduct, $4K due seems high considering the basic personal amount for 2016 is $11, 474. 

I see Trustee already mentioned that the "amount Due" calculated by your program may include CPP contributions that you owe, not just taxes. But it still seems high. It also suggests you reported it as self-employment income (Lines 135-143), where 2xCPP is mandatory. I'm pretty sure you don't have to pay CPP on Line 104 Other Employment Income.

Of course, if you want to contribute to CPP, report it as self-employment income. But you will have to pay double rate unless you can convince CRA to go after the employer for it. But that may be a can of worms you don't want to open.


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## ezri (Feb 17, 2017)

RussT said:


> I'm not an expert, but I have a few observations...
> 
> 1. If this was your only income for the year I can't see how you would owe $4,000. I suspect there is something entered incorrectly in TurboTax.
> 2. TurboTax is likely calculating CPP and EI contributions since these amounts were not deducted at source. This would be part of the $4,000 amount.
> ...


Happy to read your observations!

I had other income, but that was ~$5000 from another part time job I had later in the year (where taxes were properly deducted). Definitely not an astronomical amount. Another user below recommended entering this income on Line 104, which I will be giving a try! It makes a lot more sense than considering myself "self-employed." Although it is frustrating that the accountant at the company made it VERY clear that they don't issue T4s/are not responsible for CPP/EI and that I'm responsible for any income tax. Which, I get, but I'm definitely not an independent contractor as the CRA defines it. 

I definitely will be letting my co-op office know about this. I'm lucky that I had a feeling I'd owe a moderate amount and set aside some cash just in case, but I know so many people my age who have no clue about basic taxation...and, well, they'd be screwed.


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## ezri (Feb 17, 2017)

OhGreatGuru said:


> Yeah, your "employer" probably treated you as a contractor for their convenience, not yours. However, sometimes finding coop partners is difficult if they aren't allowed to treat you this way.
> 
> In any case, report your employment under Line 104 - Other Employment Income, and include a note as to what it was from.
> 
> ...


Oh definitely. Labelling me as an "independent contractor" makes sense for them, budget-wise, but it's not so great for the employee.

I mentioned that my other income in 2016 was ~$5000 from a part time job while in school, but that was properly taxed and not a large amount anyway. 

Am I able to only report the $17,436 on Line 104 (with a note) and avoid reporting it as self-employment all together? I'm okay with not paying into CPP, but I don't want to get a major audit surprise later in the year because not paying into CPP isn't optional. 

Thanks for your insight!


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## Just a Guy (Mar 27, 2012)

Actually, from an employee point of view, it's not much different. Had you been an employee, they would have withheld your taxes and your portion of CPP, EI, etc. Your 17k would have turned into somewhere around 10k take home. You'd have given the government an interest free loan, and then have to prove to them that they took too much from you and they need to give it back.

People always get excited about a tax refund, but they don't understand that the only reason they get one is because they paid too much in the first place.

Personally, if prefer to get the 17k and then give the government it's portion in April, leaving me to use the money until then.


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## sags (May 15, 2010)

The CRA has rules that determine the status of employee or independent contractor.

It is an important difference because there are a lot of different considerations and responsibilities. 

Unemployment eligibility, Workers Compensation requirements, vacation pay, severance pay, business tax deductions........

As outlined by the OP it is definately an employer/employee relationship.

I would discuss the situation with the CRA before filing the tax return.

_At the start of a business relationship a worker and payer often think it is a very good idea to set up their relationship as an independent contractor entering into a contract with the paying business. This permits the paying business the advantage of not having to make source deductions of Employment Insurance “EI”, CPP, and income taxes nor pay health tax and workplace safety insurance premiums. The worker benefits in that he/she can deduct all reasonable business expenses from income. Sounds good but is it?
_
_Why Does It Matter?

There are a couple of reasons:

The Canada Revenue Agency (“CRA”) may audit the paying business and determine that the relationship is not one involving an independent contractor but rather is in reality an employer/employee relationship. The CRA will then demand that the employer remit past unremitted EI and CPP and charge penalties and interest. The corporate employer’s directors may be held personally liable. The employee may be required to review past income tax returns to limit past business expenses claimed.

On a breakdown of the relationship, if the independent contractor can establish that he/she is in reality an employee, he/she may be entitled to termination pay under the Employment Standards Act (“ESA”) or under common law._


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## RussT (Jul 11, 2016)

Just A Guy may have overestimated the withholding amount. It would be more like $3,000 on $17,000 over the 8-month period I think. Otherwise, I agree that some people don't really understand that the refund is just their own money being returned. Others like the forced savings aspect and would not have invested the excess wisely.

Sorry - this is off topic.


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## sags (May 15, 2010)

My son is facing the same problem as he was hired as an "independent contractor" last October.

It has become clear that he isn't an independent contractor but an employee.

The situation becomes a stalemate and a big problem to file a tax return.

He will have to report as an employee, which will cause CRA problems for his employer........or participate in the fraud.

It would be helpful if the CRA audited everyone who claims the costs of an independent contractor as a business expense.

That may put a stop to this growing practice by employers.


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## Just a Guy (Mar 27, 2012)

It may also put an end to the jobs they offer people.

I've also read about companies that CRA has shut down because of this...destroying jobs for the entire staff.

It's a double edged sword.


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## sags (May 15, 2010)

True, but how are employees supposed to deal with this ?

There is more to it than simply filling out a line on the tax return, and more to it than income taxes.

The CRA can require copies of invoices for work performed by the employee. They may question business deductions.

A WSIB clearance certificate may be required. CPP demand both employer/employee contributions. 

The HST must be paid if there is a number issued. EI is optional for self employed workers. It is mandatory for employees.

Back to the OP.............how do they fill out their tax return ?


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## Just a Guy (Mar 27, 2012)

So, filling out an invoice and keeping receipts, not to mention saving some of your own money to pay taxes is too much extra work? You only need an HST number if you make significantly more than 17k/year. Usually companies pay "contractors" more than they would an employee...

As I see it, you could try to find another place to work that suits your needs (and not get paid while you look or can't find a job), take the money and do a little more work, or report the company get them shut down or at least punished and ensure there are no jobs from them in the future.

In fact, you could hire an accountant which is tax deductible business expense.

Of course, I've never been an employee, and never had issues doing what was required to file my taxes.

Do I agree with what the company is doing? Not really, but the alternatives look a lot worse to me and, having done what is required my entire life, I don't really see the downside a small cost of doing business. Better than being unemployed and broke.


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## sags (May 15, 2010)

What good are jobs that get people mired in problems with the CRA because an employer is acting illegally ?

_I don't really see the downside a small cost of doing business./I]

One downside is there is no provision for an "employee" to file income taxes as an "independent contractor."

A person is either an employee and uses those rules or an independent contractor and uses those rules.

A person can't be both at the same time and pick the rules that only benefit them.

If there is an accountant or tax lawyer on CMF, I would be interested in hearing their opinion on how to proceed._


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## sags (May 15, 2010)

My son gets a text today from his employer.........(who says he isn't his employer.)

He says he can't pay my son's pay due Friday until sometime next week. He is owed two weeks pay. ($1500)

He says he had to "send the CRA a big cheque".

My son says his "boss" has been awful quiet lately. I am thinking maybe he got caught by the CRA.

I told my son to start job hunting.


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## Just a Guy (Mar 27, 2012)

Well, I guess everything worked out for your son and his employer then. You should be pleased. 

I believe there is a line on the tax forms for other income. I believe, back in the day of being a sole proprietor, that is where I submitted my income from being a contractor...ironically, I was a "contractor" for the government where they're supplied everything just like the OP and your son. 

I wasn't the only government "contractor" either...and I know plenty of "contractors" who still work for the government.

I guess it's only illegal if a private company does it. CRA hasn't gone after the government for breaking their own rules.

Btw, from my experience, it seems like being a contractor is much better financially than being an employee. Contractors have eligible deductions which they can claim, a paycheque is the highest taxed income you can get. Nothing to say your son couldn't contract someone else as well...picking up a few small contracts on the side...

But then you can keep complaining about just getting lemons if you want. He's probably much better off now that he's job hunting and his former boss won't be able to pay him, or maybe stay in business.


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## sags (May 15, 2010)

If people never get a business number, HST number or WSIB certificate, they may not know their status unless they are audited by CRA or WSIB.

But if you apply you will know, because the applications won't process if the answers don't match the CRA definitions for each.

As to a sole proprietor being "better off", I would think it depends on if they are being paid a higher amount to account for the additional costs. Total costs for employees is much higher than the hourly wage. (CPP, WSIB, EI, vacation pay, stat holiday pay, overtime, commercial and business insurance). Government may pay a higher amount but I doubt most private businesses do.

As to the prospect of contracting for other work, it would be difficult when you are working full time for one employer and they are directing your work schedule.

I am not debating if it is right or wrong political policy, but it is what it is and the penalties are too severe to not do it legally.


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## Just a Guy (Mar 27, 2012)

You don't need a get/hst number until you earn more than I think $30k/ year (it's been a while since I last looked into it, it may be higher), you also don't collect it. If you report less than that income, CRA won't have an issue. 

The process is very simple, submitting a form, no cost associated with it. 

If you report more than the minimum, you can apply for the gst/hst number at the time of your first return I think and pay it then. You only have to file annually or the gst/hst until you reach a certain collection amount (I think $4k/year, but again I haven't checked in a while) then you'd need to submit quarterly. As I said before, you can hire an accountant and pay him instead of paying that amount of tax. 

As for pay, any company hiring a person has a certain budget to pay them. They can either pay them the full amount (contractor) or pay them less and pay the deductions (employee). Companies don't suddenly have more money to cover the deductions that they have to pay, it all comes from the same pot and the pot doesn't magically fill because they are an employee and cost more. Any company who pays an employee more than they can afford quickly goes out of business. 

As for being better off, I still think being paid is "better off" than not getting paid, but you can ask your son about that in the near future.

Of course, no one is forcing anyone to accept the pay as a contractor. Anyone can refuse the pay and find a job as an employee. I'm sure there are others who'll fill the space.


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## sags (May 15, 2010)

Actually, my son has to file HST because his boss earns more than the threshold and downloads the HST portion of his wages to him.

The problem is that the employer is treating my son as an employee for some things and a sole proprietor for others.

That is fine until the CRA says nope...........you can't deduct business expenses because you are an employee.

The problem isn't with the CRA. It is with small employers who either don't understand or choose to ignore the rules.

I understand what you are saying, but it can't be both...........employee and sole proprietor.


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## Just a Guy (Mar 27, 2012)

Not sure what you mean by "downloads his HST portion of his wages to him", but I think you mean the employer includes HST on the payment (or is trying to claim paying it to get the deduction). If this is so, your son still didn't have to file for an HST number as long as he remained below the income threshold. Technically he shouldn't bill for it on his invoices. Not sure why a person would willingly pay more than the invoice stated, though he may calculate the HST for his own deduction purposes as if it was charged...

I'm not sure if he's allowed to claim the HST, I know I've had similar issues in the past, where people didn't officially charge me the tax, but I leave that to the accountants/bookkeepers to sort out they know the rules. It does GE confusing especially where some products are tax free in some situations but not others (baked goods for instance are taxable if sold in individual units, but not if sold in groups of 6 or more. Used cars technically can only charge taxes on the markup, but often charge on the entire price then adjust it later so not to divulge their markup). The latter example is similar to your son I suppose where people pay more "taxes" than they should, thus upping profits. There are quite a few grey areas with taxes, in general it should remain neutral for the middleman and only get charged to the end user, but that's not always clear.

Anyway, your son didn't need to file for gst/HST unless he wanted to claim a refund...which wouldn't actually be of much benefit since he probably collected more taxes than he paid. 

CRA would come after him, no flags would go off, etc. As long as he remained below the threshold of income...even if other companies claimed they paid HST to him (as long as his invoices didn't bill for it directly or falsely claim a tax number). 

You seem to have made your life a lot more complicated by not actually knowing the rules.

Btw, make sure your son terminates his HST number when he's done working it or he'll be expected to file every year going forward, even if he doesn't collect any (he'll have to file a zero return in perpetuity if he doesn't). Also, it's not all that easy to get that done. I once had my accountant close a company down, and he informed CRA that it was done, the annual returns were filed that the company was terminated, etc. Somehow gst/HST didn't get the note (the accountant claimed he filed, the gst/HST people says he didn't...all the other departments said everything had been filed properly). Several years later I got a letter saying I hadn't filed taxes...I called and explained the company hasn't existed, sent them the proof...didn't matter, I had to file several years of zero returns and another request to terminate. I got my notice of assessmenf back for the years I filed, and a note accepting the termination, and then I had to file a final zero return after for the operating year that we were in filing all these zero returns. It was rediculous, but I finally got my letter saying it was over. According to CRA and the government registries, the company hadn't existed for years, but gst/HST kept it alive and wanted its money or paperwork...

It didn't really cost me anything (other than time to redo the paperwork and the stress from the stupidity), and I finally got my letter...but getting a gst/HST is easy, getting rid of one is a different story.


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## Eclectic12 (Oct 20, 2010)

Just a Guy said:


> ... I believe, back in the day of being a sole proprietor, that is where I submitted my income from being a contractor...ironically, I was a "contractor" for the government where they're supplied everything just like the OP and your son.
> 
> I wasn't the only government "contractor" either...and I know plenty of "contractors" who still work for the government.
> 
> I guess it's only illegal if a private company does it. CRA hasn't gone after the government for breaking their own rules ...


YMMV ... I know several who were operating in a similar fashion who then received a bill from CRA for the expenses disallowed. I'm not sure what happened on the gov't end beyond that a bunch of "contractors" were suddenly told to sign up as employees or prove they could pass the CRA tests (ex. have multiple customers etc).





Just a Guy said:


> ... Btw, from my experience, it seems like being a contractor is much better financially than being an employee ...


YMMV ... some thought they were working for a great rate plus all the expenses then found out that employees, not to mention other contractors who were more saavy were getting much better rates. It depends on what one is willing to do and how effective one is.

Cheers


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## sags (May 15, 2010)

The WSIB is another complete jungle to get through when the employment status isn't quite clear.

They ask questions to determine the premiums or if you are required to pay for the insurance.

If you are sort of an employee and sort of a sole proprietor, you can't answer the questions properly.

As a result a lot of contractors don't register with the WSIB and then they get caught working without a certificate.

Fines for working without a clearance certificate are very high........up to $100,000.


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## Just a Guy (Mar 27, 2012)

As the owner of a company, you are not required to have WSIB, only employees of the company are required to have it. If your son hired an asssitant, he'd need to get coverage for them, but he doesn't need coverage for himself, even if he works for someone else as a contractor.

Even still, premiums are determined by your income and the industry in which you are working, not to mention they are very cheap for a single person. The "problem" can be sorted out with a short phone call, the questions aren't difficult (what industry are you working in, how much money are you getting paid, etc.). 

Keep trying to make a mountain out of a mole hill though. 

You know, I understand that society works really hard to train people to be employees, and that most people fear anything else...you're providing an excellent example of this. 

Next, tell me about how insecure it is to be self employed. I know I've worked for my company my entire life, even while starting others. I can't think of any of my friends who've been employed with the same company for even half as long as an employee. I don't have to worry about my company screwing up the way it's run and costing me my job because of incompetent managers, I have control over all of that. 

Or, how about benefits...

Turns out, you pay for that as well...with lower pay. Remember there is only so much money to go around. If you're young and healthy, benefits probably cost more than paying directly...oh, and paying directly is a tax deduction. 

If you really want insurance, guess what, you fill out the same form and send it in to an insurance company, except you can choose from many insurance companies and choose coverage better suited to your needs instead of some generic policy picked by your company.

Of course, if you actually do the math and are generally healthy, insurance at best works out to a payment plan, not a real benefit. Add up how much you've paid over the years and subtract your claims. Not to mention, the benefits end with employment usually...and then you need to start all over again, maybe a different plan, etc.

What else...pension plan? I prefer to be in control of my investments, I've done a lot better than any company plan....not to mention I can choose any plan as opposed to the one given to me.

We could go on and on if you like...

It's obvious you've never really been self employed, or run a company. I understand that you probably fear things that are different. You're not alone. Heck, my entire extended family don't understand how I ever survive, they can't imagine that I'm successful even when they see the results, I get it.

The truth is, it's not much different than going the paycheque route, there are usually easy solutions to quell your "fears" if you spend a little time educating yourself instead of worrying...but, then again, most people don't look for the solutions, they get paralyzed by the problem instead. 

That's what really is the difference between those who succeed and those who don't.

Btw, I'm not saying being self employed is for everyone, far from it. I personally believe there are only a few people who can be successful at it. Im just pointing out that it's not really much harder or riskier to do if you wanted to and can get over your fear of doing something different.

I also don't say that mockingly, getting over the fear, and peer pressure, of being different is very hard. Our species has evolved because of this fear, it's ingrained in us and enforced by our education system. There's a reason why poets call it "the road less travelled" and write about it longingly...because most people would never even consider going there, even though we may secretly long to.


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## Joe Black (Aug 3, 2015)

I think the OP and SAGS son should either quite their shady "boss" or start treating themselves like a true independent business. That means no more "paychecks" - you invoice your "customer" and include HST if you are required (or choose to be registered). If the "boss" says you have to do it his way remind him you are "independent" and that he can't unilaterally impose the conditions - it's a business-to-business relationship after all. If he doesn't like it, he can choose to stop doing business with you (note, he can't "fire" you, since he never "hired" you).

Note that as an independent business, what HST he charges to his customers is of no concern to you. All you care is about the HST you charge to him, which is added on after your normal charges. Also note, you at any time could raise your rates, charge extra fees, etc. Then it's up to your "customer" if he accepts the new prices, or goes elsewhere.


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## Just a Guy (Mar 27, 2012)

Anyone who thinks you can run a business "your way" probably won't be in business very long. If you think "I'll start my own business because I hate interviews", you're sorely mistaken. Each new customer is a job interview. If you think "I'll work for myself and be my own boss", are also mistaken. Every customer is your boss, each one can and will fire you...no severance, no notice. 

Running your own company isn't easy, and it's not for everyone. There are good reasons why most companies fail within three years. I'm sure mistaken assumptions about what owning your own business will be like plays a major role in it.


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## sags (May 15, 2010)

To be accurate.....

_As of January 1, 2013, independent operators in construction must register with the WSIB, report their earnings and pay premiums.
_
_The WSIB considers you to be an independent operator in construction if:

You perform Class G construction work.
You do not employ any workers.
You work as contractor or subcontractor for more than one person during an 18-month period.
You report as ‘self employed’ to a government agency, like the CRA.

OR

You perform Class G construction work.
You are an Executive Officer.
Your corporation does not employ any workers (besides you).
You work as contractor or subcontractor for more than one person during an 18-month period.
Under the new rules, you are now both a ‘deemed worker’ and a ‘deemed employer.’ This means that you will be covered by the WSIB as a worker and will have to report your earnings and pay premiums to the WSIB as an employer._

http://needwsibcoverage.ca/who-needs-coverage/independent-operator-without-workers

Class G construction work covers just about everything.

http://www.wsib.on.ca/WSIBPortal/fa...35502100635000662&_adf.ctrl-state=42kdfcsq7_4

There is an exception for "home renovators" performing some specified work directly for home owners, providing the work is not being performed on a property that is being renovated for rental or resale purposes.

It is also the responsibility of the "hiring party" to ensure contractors possess a WSIB certificate when required.


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## Just a Guy (Mar 27, 2012)

Sorry, didn't know you meant the construction business, I'm not in that industry. I thought you were talking about a regular businesss where people go to an office, and were treated as contractors.

I can see why they'd have an exception in the construction business, probably the highest claims industry. 

If you're sitting at a computer all day, you're not in construction. If you're in retail, sales, driving a vehilcle, etc. Your not in construction...again though, registering and paying premiums is neither hard, nor expensive. It can be done over the phone or on-line. It's Insurance, so it's also protecting you.

I'm sure you can find "exceptions" to any rule if you try hard enough...if only you son spent as much effort in trying to learn how to be a contractor as you do trying to prove how hard it is, he'd be a very successful businessman.


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