CRA: Withholding and Reporting Requirements come tax time for owner-operators.


Source: CRA Website

If you are an employee, your employer will deduct Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income tax from your pay. The income taxes deducted,
together with your and your employer’s share of CPP and EI, will be remitted to the Canada Revenue Agency (CRA). At year-end, your employer will report your income and deductions on a T4 slip –Statement of Remuneration Paid.
For more information, see Guide RC4120, Employers’ Guide – Filing the T4 Slip and Summary, on the website.
If you are a self-employed individual (sometimes referred to as an independent contractor), you will not have income tax, CPP, and EI deducted from amounts paid to you. At year-end, you are
responsible for:
– paying all income taxes owing;
– paying CPP contributions (equivalent to both the employee and employer portions); and
– paying EI premiums if you entered into an agreement with the Canada Employment Insurance Commission to have access to EI special benefits (maternity, parental, sickness and caregiving
All amounts paid to you must be reported on a T4A slip – Statement of Pension, Retirement, Annuity and Other Income.
For more information, see Guide RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary, on the website.
You may choose to incorporate; however, if you would normally be an employee if it were not for the existence of the corporation, the CRA will consider you a personal services business (PSB). This is sometimes referred to as an incorporated employee.
PSBs are not entitled to income tax deductions available to other corporations such as the small business deduction and the general rate reduction. Your corporation will be subject to the full federal and provincial tax rates on all taxable income. For 2018, the combined federal and provincial tax rate is 33%. Withholding and Reporting Requirements Relationships between workers and payers can vary. Your status may have tax and benefit implications.
In addition, PSBs cannot deduct most expenses available to other corporations. These types of expenses include things such as office supplies, travel expenses, meals, and cell phone costs. The only expenses that your corporation will be able to deduct are:
– the salary and wages the corporation pays to its incorporated employee(s);
– any benefit or allowance the corporation provides to its incorporated employee(s); and
– legal expenses the corporation incurs for collecting amounts owing to it.