In my role with Professional Contractor Solutions Inc. (PCSI), I have spent time with key stakeholders across the country discussing the risks independent contractors and employers (even third party agencies) face as it relates to the Dependent Contractor and Personal Services (PSB) Issues. That includes spending a lot of time with independent contractors who are not as informed as they should or could be. One of the most common statements that I have heard from contractors is, “You know, I’ve heard a lot about the CRA but I haven’t heard about someone actually being audited and reclassified as a Personal Services Business. Until I hear about it actually happening, I don’t think I really need to do anything differently”.
We know that the problem is not perceived, it is real. And if left unchecked, the independent contractor model as we know it here in Canada could be eliminated as we have seen in the US and the UK. Unfortunately, the contractors’ current perception is their reality so even though there are “Beware of Sharks” signs posted everywhere, contractors want to see “blood in the water” before they will believe they are in any real danger. So, with the realization that it would be up to us to change their perception, we began searching to find the “blood in the water” that these contractors needed to see for themselves.
Very quickly we realized that there is no bulletin board, no Facebook page, no public forum or chat room highlighting these PSB cases. Why weren’t these cases more openly available? We knew we needed to find these cases before we could change these contractors’ perceptions, so we went to the source. We asked our network to connect us to those facing the issue, and one interview stood out for obvious reasons.
We met with a Calgary lawyer representing 40 separate local independent contractors who were each being assessed for the 2012 and 2013 tax years. The lawyer was very careful not to disclose any confidential details with us. The quick facts are that of the 40 contractors who worked in Oil and Gas (approximately 28 field workers and 12 management), the lawyer shared that each faced a tax bill on average of $125,000 owing. These contractors were denied their small business deductions and spousal income and were taxed corporately at 40%. Of the 40 contractors, the lawyer predicted that half would declare bankruptcy. The lawyer also shared that he had not heard from 8 clients and thought that they had potentially taken jobs overseas to avoid the issue. We asked what the status of the cases were and he told us that they all recognize they were “guilty” and he discouraged any legal action in tax court as he believed it best to simply negotiate more time to pay and avoid further penalties.
The lawyer shared one final insight when we asked why we don’t hear more about contractors being assessed. He said that in general, contractors in this situation don’t want anyone to know that they have been assessed because they fear being “black balled” in the industry. He explained that if a potential employer discovered that a contractor had been assessed or audited in the past, they wouldn’t want to work with that contractor because they are already on CRA’s radar. An organization would be afraid that the contractor would bring unnecessary attention to them and the rest of their contractors.
The most exciting part of the business for me is the possibility of changing the way contracting is done in Canada. We have the opportunity to prevent what has happened in other countries like the United States from happening here. PCSI will always focus on presenting the facts and educating Canadians in efforts of protecting the contractor model in Canada. It is imperative that contractors face the facts, and act on this reality because now not only are they at risk, but so are the employers. We encourage organizations and their contractors to work together to protect the contractor model in Canada.
To protect the contractor model in Canada we need to continue to bring awareness to this issue, and continue to gather examples of independent contractors being impacted. If you or someone you know has been audited by the CRA in this capacity, please don’t hesitate to contact PCSI to share your story. Email us at firstname.lastname@example.org or call 403-475-7274.