Since owners need to be very careful when they are hiring contractors for their business says Edmonton bookkeeping. The reason why, is because while contractors do not have source deductions being withheld from the amount of money that a business owner pays them. However, if they are not remitting those source deductions themselves, that may cause Canada revenue agency to investigate. They will be looking to see if the contractor should be considered an employee, so that they can figure out who is responsible for paying the source deductions on their behalf. If they are deemed a contractor, they will be on the hook with source of actions. However, if Canada revenue agency deems that they should be considered an employee, the business owner will be responsible for paying all the source deductions that should have been paid on their behalf.
Ultimately, business owners that shoulder the risk for this, because if the higher contractor whose leader deemed to be an employee, not only will they have to pay all of the source of actions that they have ever owed, but they will also get assessed up on top of that. This penalty is 20% interest charged that is accrued on a daily basis. This means it can end up being a very significant amount of money in a very short period of time.
The reason why this is such a steep penalty, is because Canada revenue agency sees failure to pay source that actions on time is very serious says Edmonton bookkeeping. The views their source deductions as government money that is being held in trust. Therefore, by not paying it properly is seen as misusing government funds. Therefore, Canada revenue agency has this as a very steep penalty to act as a deterrent, to ensure that business owners are paying source sections in the correct amount and on time.
Many business owners may not know what makes a person a contractor or an employee. Therefore, business owners might simply want to create an employment contract. This way, whether they are hiring an employee or contractor, they can be very clear on what the employment terms are, and outline if there considered an employee or contractor. By outlining all of the terms of their employment, or all the terms of their job can help prove who is an employee in his a contractor if investigated by Canada revenue agency.
Another way that business owners can protect themselves, is to ensure that if they are hiring contractor in their business, that they ensure that they are incorporated. Since contractors who are incorporated will have specific requirements on their tax filing to Canada revenue agency, therefore, if a business owner hires a contractor whose incorporated, the responsibility to the business owner to pay source deductions on their behalf is completely eliminated. Therefore, business owners can avoid all penalties associated with this if they ensure that whenever they hire contractor, that those contractors are independently incorporated.
Edmonton Bookkeeping | Do Contractors Have Source Deductions Withheld
Business owners may believe that they are simplifying things for themselves if they simply ensure that all people that they hire for their business are contractors says Edmonton bookkeeping. The Millie believe that this is very easy, because they will not owe source deductions on behalf of those contractors. However, business owner runs the risk of having Canada revenue agency SS those contractors as employees and be responsible for paying the source deductions anyway. However, business owners need to understand that if this is the case, not only will they be on the hook for the source deductions, they will also be on the hook for penalties as well.
The penalties that business owners would have to pay that the associated with having a contractor whose deemed an employee is 20% interest charges on the entire amount that they owe that is calculated on a daily basis. Since they will end up owing the source deductions for that contractor since the beginning of their employment, that amount that they have to pay the Canada revenue agency is already potentially very large. If a business owner then has to add a 20% interest charge per day on top of that, it can be extremely difficult to pay, and may even put a business owner at risk of having to close their business. In fact, industry Canada says that 50% of all businesses fail in Canada, and twenty and percent of those businesses that fail say that running out of money was the reason why their business was not successful. Therefore, business owners are putting their business at extreme risk of failing if they are making this mistake in their business.
Ultimately, business owners need to be determining if that contractor should be considered an employee, by using the same determining factors that CRA does says Edmonton bookkeeping. For example, the more control that a business owner has over that person, the more likely they will be considered an employee rather than a contractor. For example, employees do not set their own wages, they do not set their own schedule, and they cannot take any other jobs during that time. However, employees also do not incur their own expenses, have to pay for their own supplies and materials, and do not have the ability to lose money.
Contractors on the other hand says Edmonton bookkeeping do not have to adhere to a set schedule, set their own price, and invoice the business owner, they can hire people to help them with the job of the want, they can take other jobs during that same amount of time, but also the have the ability to either profit, or lose money on the job, and that risk is what helps determine that they are contractor. Therefore, business owners need to understand how much control they have over the person that they are hiring, and whether they will be deemed an employee or contractor by Canada revenue agency.
Ultimately, business owners need to understand that even if they are assessed as having an employee when they thought they had a contractor, even they may have the ability to appeal it within ninety days, Canada revenue agency takes a very firm look at this, because they determine this is one of the most serious offences according to Canada revenue agency. The reason why, is because they view improperly or incorrectly paying source deductions as an abuse of government money.