I recently accepted a job offer from a Staffing Agency after interviewing with the company. The agency says I must be Incorporated as a business (and specifically not a sole proprietor) in order to be paid.

The job is in Canada.

I thought this was sketchy. I did some further research and found that if the government finds that I was doing work in an employee-employer relationship at a company under the guise of a contract I will be taxed punitively.

The job I'm going for is Software related. I will be working on the Corporations premises. I will be given work by them. To my knowledge I feel I am an employee and not a contractor. Although technically I am a contractor on paper.

They did not tell me that I need to be incorporated until I accepted the job offer and gave notice to my current workplace. Now I am in a position where I must create a business to have work.

Will incorporating myself bring trouble to me in the future?

  • 1
    You're not an employee, you're a contractor. Contractors are their own business. – Jack May 25 '17 at 1:14
  • In the event the CRA finds me to be working in the capacity of an employee, is there anything I can do to avoid being unfairly taxed? – Jakuma May 25 '17 at 1:21
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    You're going to need to hire a lawyer in order to incorporate anyway. When you do, have them explain what kinds of actions or activities you need to avoid in order to stay within legal bounds. – Caleb May 25 '17 at 1:38
  • Hello Jakuma, I am from Quebec, I was in a situation like this from 2010 to 2016. Like others said, it is a grey zone where you have to respect some boundaries. I was writing an answer when your question has been closed. I met a lawyer and a did business with an accountant monthly. If you want, you can drop me a mail at sebastien@hollox.net so I can give you a summary but at the end, you will have to met a lawyer and an accountant :) – Sebastien DErrico May 25 '17 at 19:07
  • Are they going to pay you contractor rates? The extra money will help pay the corporation costs, extra taxes, etc. – mkennedy May 25 '17 at 21:26

Incorporating is relatively cheap (a few hundred dollars) and you can ignore the company later (or wind it up) should you no longer wish to work through it. If you're in Ontario, it provides pretty good instructions; other provinces presumably have similar page.

That is not the real problem. The problem is your compensation under this arrangement will be a lot less than you thought it was. Your corporation will only be able to bill for days you work - not the (over 10) statutory holidays each year, nor your vacation, nor any days you are ill. You may also be expected to provide your own laptop and even your own licenses for the development tools you use. You won't be eligible for Employment Insurance since you own your actual employer. This means you don't have to pay premiums, but it also means you won't be covered if you lose your "job" (that is, if your company loses its only client) or get too ill to work. And of course there won't be any health insurance provided by your client - if you want prescriptions, glasses, dental work etc to be covered you'll have to buy your own coverage. Not to mention disability insurance.

As a side note, it isn't you who will be taxed punitively, it's the "employer" - who will have to submit both the usual employer-paid and employee-paid contributions to EI, CPP, etc. It's super important to them that you're not an employee, because if they were an employee they would owe you a lot of stuff they have no plans to give you. If you want that stuff, you need to provide it to yourself.

Assuming you are ok with the money side of things, you can incorporate, register for GST, then each month invoice them, submit the GST, pay yourself and submit your own CPP contributions. It's maybe half an hour's work a month to do that. Once a year you issue yourself T4s. Learning how is pretty straightforward. But you must understand the difference between billing a client X dollars an hour and being paid X dollars an hour as an employee. It is an enormous difference.

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  • Thank you. This is helpful. But I can't help but still feel fearful of being marked a personal service business. I will still be a business in this case but I will be taxed punitively for this. – Jakuma May 25 '17 at 2:18
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    The rules for whether you are a business or an employee are not black and white. Incorporating doesn't guarantee you won't be deemed an employee. Having expenses, having other clients, advertising for clients, doing things to get other clients, directing your own work, using your own equipment and premises: these all point away from employee. But most will not be options for you. I dislike the "body shop" model of supposedly-contractors who are treated exactly like employees. But that is what you have landed. Is it what you want? Is it better than nothing? – Kate Gregory May 25 '17 at 2:22
  • ps your article makes it clear the "punitive" taxes you refer to do not exist. At worst your tax situation will be as though you were the employee you want to be. Not worse than being an employee. – Kate Gregory May 25 '17 at 2:24
  • I think the tax rate is higher to dis-incentivize PSB's. One source says it was 39.5% for 2014. Unfortunately, this is not what I want. It is too sketchy in my eyes. – Jakuma May 25 '17 at 2:32
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    +1 for you must understand the difference between billing a client X dollars an hour and being paid X dollars an hour as an employee. It is an enormous difference – Sebastien DErrico May 25 '17 at 19:08

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