Income tax question in canada?

Question

Please help me with my questions.

I live in Vancouver, BC, Canada and work as a tutor at a learning center. I don't know why the employer categorizes all of her employees as self-employed. So, all of us are self-employed tutors for her and get pay by the hour. That means,

there are no deductions from our paycheques ( no contributions to Canadian Pension Plan and to Employment Insurance). We all get the gross earnings.

(1) I am single, have no children, and don't have any assets,

investments, bonds, cars and so on. I have always been

living in Vancouver, BC, Cananda. I rent an apartment and

go to work by bus. Approximately, I will have earned an

annual gross income of $14 000 CAD at the end of 2008.

How much do you think I will have to pay back the

government when I file an income tax return next year?

(2) Why does my employer employ us on a self-employed

basis? Is she getting any advantages this way?

Thanks a lot.

Answer 1

When you say 'I rent an apartment' I'm going to assume that you are the tenant, not the landlord, which seems to have been the assumption for the first answer.

First off, it's not unusual that tutors would be classed this way. I know someone in the same boat, even though he works through an agency (similar to Sylvain). Keep your receipts for any and all expense you have that relate to your tutoring, such as stationary, and such. If you don't have a car, and don't have to go from place to place to tutor different students, I can't think of what else you would be able to claim.

If you are taking the bus to work, start using monthly passes and keep them. They are now claimable on Schedule 1 as a non-refundable credit. In order for the pass to be a valid deduction, it must show your name, the amount paid, and must have been for unlimited use during the month.

If your gross income is around $14,000, you will be subject to Federal and British Columbia income taxes. The estimated amounts are as follows:

Federal: 15% above $9600 ($660)

BC:     5.35% above $9189  ($257.40)

So the income tax won't amount to all that much. The big juicy bite will be the Canada Pension Premiums, and this is one of the advantages that your employer has in not "employing" you.

When you are regularly employed, an employer is required to match your contributions to the CPP. The normal rate is 4.95% of the income above $3,500.

When you are self-employed, you are required to pay the normal rate for employees, and also match the contribution because you are your own employer. So you will be paying 9.9% of the income above $3,500.

CPP:  (14,000 -3,500) * 4.95% = $1039.50

So on your $14,000 income your approximate liability for income tax and CPP will be about $1,958.

One more thing to be wary of. As a self employed person, you are not allowed to pay EI premiums. So if you lose the job for whatever reason, you will not qualify for EI benefits.

Answer 2

Claim all expenses incurred to earn income such as taxes, insurance, minor repairs and maintenance, interest expense and accounting fees paid to have the rental statement on your tax return prepared. Claim Rental Expenses. Claim capital cost allowance to reduce your rental profit to zero. Claim to work by bus Expenses.

Rental income is based on the accrual method and therefor any expenses incurred but not paid such as property taxes may non the less be claimed in the year to which they apply.

You might pay about 10% of annual gross income of $14 000.You might pay also CPP premiums.

Why does my employer employ us on a self-employed

basis?

Is she getting any advantages this way? YES

You better consult with an income tax specialist.

Good luck

Answer 3

Just to add on to what the last answerer said, you should call your local CRA tax services office in your area and speak with a CPP/EI rulings officer. You can also write a letter and complain about your "employer".

Check out this publication from CRA online

http://www.cra-arc.gc.ca/E/pub/tg/rc4110...

There are a series of questions in there you can ask yourself to learn whether CRA will determine if you are self employed or an employee. Your employer does not get to decide, it just is what it is.

A rulings officer can visit your workplace and make a ruling.  If they rule that you and your coworkers are employees, yes you will have to pay some CPP and EI, but your employer will also have to pay your portion ( they pay a bit more for EI ). They will also be required to withhold payroll taxes.

Better to have this investigated now rather than later.

You can do it so that your employer doesn't know it was your who called them in. Good luck.

Answer 4

I don't have much to add.  THe respondent above did a good caluclation of the tax you'll have to pay with no deductions.  ALso claim your bus pass.  This is not uncommon, I did it for some time.

Your employer does get benefits for sure.  THey don't have to pay employment taxes, which could amount to as much as you'll pay in tax, they don't have to pay their portion of your EI premiums, or all the other stuff they would otherwise.  

CRA is careful about this kind of thing.  'Employee' is defined in the tax code and there are ways you could force your employer to 'admit' you're an employee.  One of the criteria is whether you get paid by the hour, day, piece, etc.  Another is whether they have direct day to day influence on your activities, and whether they are your only payer at one time.If you bring it up and force the issue, you'll get fired.  Call CRA they are actually pretty good about this sort of thing.