It is very important that entrepreneurs withhold source deductions properly says Edmonton bookkeeping. If they do not, they could face stiff teas, some of the stiffest that Canada revenue agency hands out. The view not remitting source deductions properly as one of the most serious defences, and it carries some of the stiffest penalties. This is done so that it acts as a deterrent to keep business owners for making this mistake. The reason why, is because source deductions are considered government money being held in trust. By not passing that money on correctly, is considered an abuse of government money. Therefore, business owners need to be sure that they are not only withholding source deductions correctly, but remitting them to Canada revenue agency correctly as well.
Business owners know how important it is to withhold source deductions correctly from employees. The have calculator that they can use to tell them how much they need to withhold, and they know when to remit that payment to Canada revenue agency says Edmonton bookkeeping. But a big problem comes in when business owners how hired a contractor in their business. They will not withhold source addictions from the contractor. However, if they do not remit source elections themselves, as a contractor then Canada revenue agency might do an investigation.
The purpose of this investigation says Edmonton bookkeeping, is to determine if that contractor should actually be considered an employee. If they should be, then the responsibility will fall onto the business owner to pay that amount of source deductions that is owed. Not only will they get assessed this for the contractor, but they will be expected to pay all the source deductions from the very beginning of that contractor’s employment with the business owner. If they have been working many hours, or a long time even years, that can add up very quickly.
Not only will the business owners have to pay the employee portion of CPP and EI, but business owners will be expected to pay the employer portion as well. on top of that, business owners will also get assessed a penalty. At penalty of 20% interest on the entire amount can be devastating enough, that business owners need to realize that is going to be a daily penalty, accrued until the pay the amount in full. This can be a significantly high amount of money, literally turning a thousand dollars into twelve hundred dollars overnight. This can be financially crippling for many businesses.
The way that business owners can avoid being assessed with this penalty says Edmonton bookkeeping is to simply be very clear on who an employee is and who a contractor is. They may draft up an employment contract, that outlines very clearly the expectations and the responsibilities, so if Canada revenue agency has any questions they can look at the contract. Also, business owners can ensure that all contractors that the higher are incorporated. By hiring only incorporated contractors, is owners can completely eliminate their risk.
Edmonton Bookkeeping | Correctly Withholding Source Deductions
Many business owners understand how important it is to correctly withhold source deductions from their employees paychecks says Edmonton bookkeeping. However a huge risk comes in when a business owner hires a contractor, and they end up not withholding any source deductions at all because there contractor. If they are considered an employee by Canada revenue agency, the onus falls to the business owner to pay all the source deductions that are owed. Therefore, business owners may be penalized if there contractor that the higher is not incorporated, and does not remit their own taxes.
When Canada revenue agency investigates this, they will try to make the determination if the person should be considered an employee, or if they are truly a contractor. To find this out, they will be asking a series of questions, typically and first to be contractor. They are going to try to figure out what level of control the business owner has over that person. The more control that a business owner has, and the more likely they are going to be considered an employee.
Edmonton bookkeeping says for example, employees will have the wage that they get paid dictated them by the business owner, and if and when they get wage increases. They will also typically be expected to show up to work at a certain time, and stay for certain number of hours. They will also be expected to do any tasks that a business owner requires. Employees will also not be responsible for any of the bills, or buying any of the supplies and materials, and is not responsible to own any of the tools that they used get the job done. Also, the business owner will dictate to them how the job is going to get done.
Contractors on the other hand have a lot more freedom. They typically are able to come and go for the job site as they wish, hire staff to help them with the job if they want, set their own prices, and issue an invoice to the business owner. They also typically own their own tools, by their own supplies of material and will be responsible for their own bills. Ultimately says Edmonton bookkeeping, there is a risk associated with being a contractor, if they stand to either profit or not on a job, that ultimately ends up showing Canada revenue agency if the two be considered a contractor or an employee.
By understanding the difference between the two, can help entrepreneurs be very clear at the hiring stage who is being hired as an employee and who is being hired as a contractor. They can draft up employment contract, they can outline everything very clearly, so that if there are any questions from Canada revenue agency, they will be able to show them the contract, and determine intent. Therefore, business owners should be very clear from the very beginning of employment in order to ensure that they are not taking on this risk.