Independent contractor in Canada: avoiding misclassification

The tests that decide it

Control is the central factor: who decides how, when and where the work is done. Ownership of tools, the ability to subcontract, the chance of profit and the risk of loss all point one way or the other.

Canadian law also recognises an intermediate category. A dependent contractor — economically reliant on one client over a long relationship — is entitled to reasonable notice of termination even though no employment relationship exists.

A CPP/EI ruling from the CRA can settle the classification in advance and is worth requesting for long engagements.

1. 1.Describe the work by deliverables and outcomes rather than hours of attendance.
2. 2.Set fees, invoicing milestones and payment terms.
3. 3.Confirm the contractor supplies their own tools and may work for others.
4. 4.Address GST/HST registration and who bears it.
5. 5.Assign intellectual property expressly, with a waiver of moral rights.
6. 6.Include a clear termination clause with a notice period.

Tax and invoicing

A contractor whose taxable revenues exceed the small supplier threshold must register for GST/HST and charge it; the agreement should say whether fees are inclusive or exclusive.

Contractors are responsible for their own income tax and CPP contributions. The payer should not be making source deductions — doing so is itself evidence of employment.

Intellectual property and termination

Copyright in work created by a contractor belongs to the contractor unless assigned in writing. Assignment should be express, and moral rights should be waived, since in Canada they are not assignable.

Termination deserves a clause even in a contractor agreement: without one, a dependent contractor may claim reasonable notice, and an abrupt end to a long relationship is exactly the fact pattern that produces those claims.