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Tag Archives: taxes

All Talent Development Centre posts for Canadian technology contractors relating to taxes.

Contracting and the Underground Economy

Morley Surcon By Morley Surcon,
Vice-President, Western Canada at Eagle

The Underground Economy Doesn’t Apply to Independent IT Contractors… Or does it??

The Underground Economy Doesn't Apply to Independent IT Contractors... Or does it??The topic of Canada’s underground economy seems to be raised again and again over the course of years and tends to come in waves — we’re seeing one now.  In the last week alone, I’ve read several newspaper articles and even heard it on my drive in on the News Talk radio station that I listen to.

What is the “underground economy”?  Sounds pretty sinister and, I suppose, parts of it might be, but it’s a lot more common than most people realize.  The CRA defines the underground economy as:

The underground economy is any activity that is unreported or under-reported for tax and GST/HST purposes. Often called “moonlighting” or “working under the table,” it can include bartering, failing to file tax returns, omitting an entire business activity from your tax return, “skimming” a portion of business income from what you report on your taxes, and not reporting a portion of employment income like tips and gratuities.

Generally, any income you earn is taxable and you have to report it on your tax return. If you don’t file your tax return or register your business for GST/HST when you’re supposed to, or you don’t report all of your income, you are participating in the underground economy.

So, by this definition, it is the guy down the street that does landscaping on the side; it’s the waiter who pockets your tip without claiming it as income; it’s the small business that accepts cash without putting it through the till.  Various newspaper articles estimate Canada’s underground economy to be worth between $42 Billion and $46 Billion — in aggregate, not a small amount.  That’s a lot of tax that is not being collected and everyone from the CRA to Chartered Accountants are looking at ways to curb these practices.  I’ve seen ideas ranging from legislating restaurants to track and report tip money on T-4’s to instituting a reward program for leads that result in $10,000 or more in taxes collected. (This latter already exists. CRA’s program is called the “Informant Leads Program” and, apparently, some of the most common “sources” of leads come from ex-business partners and divorced spouses).

As the economy is suffering and government spending is being spread very thin, this missing tax revenue is being highly coveted by government. But this doesn’t impact professional and/or technology contractors, does it?  After all, most are hired via a well-defined contract and have clear paper trails including time sheets, invoices and remittances.  The answer to that question is yes.  Well, maybe.  Certainly the paper trail will help in the case of an audit but by the time there’s an audit, the pain is already being felt.

Independent contractors (IT, Finance/Accounting, Engineering, etc.) should have concerns that the government may take a broad-brush approach to contractors/temporary labour in general; lumping them all together without full consideration for their differences.  This is one reason that Eagle belongs to (and has taken leadership in) such industry organizations as ACSESS and the NACCB, which are staffing industry associations who are actively lobbying the Canadian and Provincial governments on behalf of the industry and the contractors that are a part of it.

If you wish to learn more about the underground economy in Canada, I’ve attached links to some recent new articles below.  Let me know your thoughts on this issue by leaving a comment below!

The Tax Implications of Doing Business in the U.S.

This post first appeared on the CA4IT Blog, December 7th, 2015

Tax-Saving Opportunities for Independent Contractors

The Tax Implications of Doing Business in the U.S.Because data flows freely across international borders, many IT professionals have developed an international clientele. While doing business internationally can help Canadian companies to grow, smart business owners are keeping an eye on the tax implications of doing business in the U.S. The Canadian Business Journal reports that while most Canadian companies are on top of the federal tax laws that apply to their U.S. business activity, some are unaware of the state and local taxes that can significantly cut into their profits.

According to CFO Magazine, a number of states are becoming aggressive about collecting additional income tax revenues from corporations by asserting economic nexus ­­– a situation in which a business has a sufficient connection with a state to subject it to taxes imposed by that state. A CFO survey found that California and New York are the states that are most aggressively leveraging economic nexus to generate tax revenues, followed by New Jersey, Michigan, and Massachusetts. A number of other states are also actively seeking to collect tax revenue from business from other states and other countries.

Complicating the situation is that each state has its own tax code, which makes for a wide range of state tax bases and rates. And it’s not just states that are looking to maximize their revenues at the expense of non-local companies. Many cities and municipalities have their own rules covering income taxes, gross receipts, and sales taxes.

Income tax accountants recommend that businesses research state and local tax laws before establishing a nexus in an area. Understanding your obligations before you start doing business across the border gives you the best opportunity to reduce your tax liability. If you’re already doing business in the U.S. and haven’t paid state taxes, The Canadian Business Journal recommends that you evaluate the benefits of entering into a voluntary disclosure agreement with the state. A voluntary disclosure could result in a reduction in multi-year back tax liabilities and might reduce the penalties and interest you may owe. A voluntary disclosure could also mitigate potential criminal penalties arising from a failure to file taxes in the U.S. Be sure to consult a tax attorney before making any disclosures to a government agency outside Canada.

Tax liability is a complicated area. If you’re interested in expanding your business into the U.S., or you have already established an American clientele, it would be to your benefit to consult an accounting and bookkeeping service or more ideally a professional accounting firm like CA4IT that specializes in helping IT consulting professionals. Give our experienced CPAs a call today at 800-465-7532 or contact us by email.

9 Ways to Prepare for Freelancing in 2016

This article by Kate Rodriguez was originally posted on Social-Hire.com January 1, 2016

9 Ways to Prepare for Freelancing in 2016You’ve seen it, right? The impressive prediction that by 2020, over 40 percent of American workers will be freelancers (AKA “contingent workers”)? That figure hovered at just 10 percent in 2014. The fast-growing trend of self-employment has two sides and two sources. On the one side, professionals — particularly millennials and Gen Y’ers — want more control over their work lives, including the ability to set their own schedules, income potential and tasks. On the other side, employers want the flexibility to adjust their workforce levels according to need, and they want to employ the most talented people for less money. When experienced professionals freelance, it’s a win for both parties.

If you have been thinking about becoming a free agent, either as a full-time endeavor or a part-time side gig, you’ll find success faster if you know what to expect. In addition to making the obvious decision about what services you’re going to offer as a freelancer, you’ll want to prepare in these nine important areas:

  1. Be Ready to Market Yourself

Unless you can line up and keep a steady flow of clients via your connections alone, you’ll need to spend a considerable amount of time marketing your freelance services. Many self-employed persons spend up to a third of their work time on marketing, and not just at the beginning. It’s a necessary part of running a business, even if that business is just you. You must learn to like promoting yourself!

As a starting point, set up a website showcasing your expertise, what you offer and to whom, client references and, depending on your field, a portfolio. Create business cards and company brochures, as appropriate, for your line of work and target client audience. And don’t forget the awesome power of networking as a marketing tool. Whether it’s formal networking (e.g, in a professional association or a LinkedIn group) or the informal variety (e.g. sharing updates of your freelance activities with family, friends and neighbors), you should build in time for this important strategy.

  1. Update Your Cover Letter and Resume

Even if you intend to leave the 9-to-5, fixed employment world altogether, you’ll likely still need to go through the traditional process to apply for freelance gigs. Most companies will request a cover letter and resume, and will want to do an interview or two. Remember that in many cases, organizations are looking for a contingent employee with whom they can establish a long-term relationship. They’ll want to make sure you are the right fit, both in terms of your skills and your reliability. Prepare to follow the usual rules of professionalism when applying and interviewing with potential customers.

  1. Get Up To Speed on Taxes and Legal Matters

Know what a Form 1099-Misc is? You’ll need to if you want to be a freelancer.  Though it’s not terribly complicated, you’ll have to learn the ins-and-outs of paying taxes as a self-employed business owner. You must also understand the legal requirements of setting up a business, including licensing. Lastly, you should fully understand contract documents, like non-disclosure agreements (NDAs), and client contracts, which protect you and the customer from misunderstandings and legal woes.

  1. Be Creative about Finding Your First Client

Many freelancers need to secure their first client to prove to themselves – and future clients — that they’re capable of succeeding in this new career. Yet the first client is often the hardest one to score. Be prepared to work at this, but also be creative. Maybe the company you currently work for could be your first client, if you make them an attractive offer, i.e., your expertise working on a specific project at an overall lower cost to them. Offer to give a speech or write an article that demonstrates your expertise – and don’t forget to mention you’re for hire. Approach some prospective clients and offer a free evaluation, or mail postcards to them containing your sales pitch. Your first customer does not have to be a dream client that offers the most interesting work at top rates. The goal is to get started with one project. You’ll learn from it and, ideally, obtain a reference, which will help you secure the next client and beyond. With time and experience, you can trade up to bigger clients and better pay.

  1. Look Locally, But Don’t Forget You Are Available Everywhere

It will probably be easier to find clients locally for your freelance work since you’ll be relying on your network of personal and professional contacts. Contingent on what type of services you offer, however, you could potentially find clients anywhere. A marketing consultant or a web designer, for instance, could just as easily be working for a business in Australia as for one in their hometown. As the global freelancing talent pool grows and becomes more attractive to businesses of all shapes and sizes, these same companies are becoming more comfortable hiring remote workers and communicating with them virtually. So, focus your marketing efforts broadly – you never know where the next client might be sitting.

  1. Get Familiar with Freelancer Platforms in Your Niche

Once you determine the services you’d offer as a freelancer, you should familiarize yourself with any online platforms that bring together free agents and clients in your industry area. Toptal, for example, focuses on software developers, StudioD on content writers, and Guru on all manner of consultants. A note of caution: some platforms (especially those with bidding models) effectively enable a race to the bottom, where clients try to bid out work for below-decent rates. Nevertheless, platforms can be a good way to land your startup clients and to provide you with a look at what type of projects are out there as well as client expectations.

  1. Understand Pricing and Your Worth

Setting rates as a freelancer can be tricky. When you’re new at the game and don’t yet have much to show, you’ll want to avoid setting your rates too high. At the same time, you don’t want to fall into the trap of offering lower-than-average rates to capture clients. The simplest way to set your rates is to base them on the average hourly pay you receive now in your job as a fixed employee, assuming you are planning to freelance in the same field. Another, albeit rough, method to do this is by dividing your desired weekly freelance income by the number of hours you plan to work each week. For realistic ideas of what others charge clients as startup freelancers, find a discussion thread – or start one yourself – on Reddit, Quora, or an industry-specific LinkedIn group.

  1. Connect with Other Freelancers in Your Niche

Along with discovering what other freelancers in your industry are charging their customers, you’ll speed up your learning curve significantly if you connect with self-employed people doing what you plan to do. Spend some time identifying online communities or offline groups where freelancers gather to share leads, productivity tips, articles, and “how I got started” stories, and be prepared to contribute regularly. Use Meetup.com, for instance, to discover groups of like-minded freelancers in your area. You can even start your own Meetup group if you don’t find one that fits.

  1. Focus on Client Relationships, Not Just on Projects

To avoid the “feast or famine” problem of freelancing, you’ll want to accumulate a handful of clients for whom you do regular work. This ensures a reliable monthly income and allows you, over time, to specialize deeply in an industry or functional area. The more of a niche expert you become, the more valuable and sought-after your services will be. Prepare to approach each project with the goal of building a relationship with the client that extends beyond the work at hand. Take the time up front to understand the client’s needs fully and deliver the best product you can. Follow up to make sure the deliverables have met their expectations, and thank them for working with you. Once you’ve established a rapport in this way, you can make suggestions for future projects that could enhance the client’s business. This is not just about your earning more money. It’s about becoming a business’s trusted advisor to your mutual benefit.

Although there’s plenty of buzz about the benefits of freelancing, it will not work for everyone at every stage in their personal and professional life. Look carefully at the costs and benefits of going solo before you leap. As a freelancer, you’re becoming a branded business and should treat it as such: plan carefully, consider every risk factor, prepare for ups and downs — and more likely than not, you’ll end up a winner.

Tax-Saving Opportunities for Independent Contractors

This article was originally posted on the CA4IT Blog on December 4th, 2015

TaxAs an independent IT consultant, you are intimately familiar with how much it costs to operate your business and often, it seems like the CRA isn’t helping to keep your costs manageable. Since the CRA won’t be going away anytime soon, keep the following tax planning strategies in mind to ensure your tax bill is as low as possible next year. While all of these tips are easy enough to do by yourself, we recommend hiring an accountant for IT consulting professionals to make sure that you get every tax break your business is entitled to each year.

According to the CRA, you can deduct any reasonable current expense you paid or will have to pay to earn business income. There are a number of tax deductible expenses that independent contractors can write off, including:

  • Your vehicle – You can write off, at least partially, your costs for fuel, parking, and regular maintenance like oil changes, any necessary repairs, highway tolls and insurance. The amount you can write off depends on how much you use your car for work. If you use your car 75 percent of the time for work-related trips, then you can write off 75 percent of these expenses. Be sure to keep track of work related travel so you can accurately take advantage of everything that you’re legally entitled to deduct.
  • Travel – You can legitimately deduct the cost of hotel accommodation and public transportation fares when you travel for business, and 50 percent of what you spend on food and entertainment.
  • Supplies – You can deduct the cost of items your business uses indirectly to provide goods or services (for example, drugs and medication used in a veterinary operation, or cleaning supplies used by a plumber).
  • Professional services – The CRA lets you deduct accounting and legal fees you incur to get advice and help with keeping your records. You can also deduct fees you incur for preparing and filing your income tax and GST/HST returns.
  • Some computer and software expenses – If you lease computers, cell phones, fax machines and similar equipment, you can deduct the percentage of the lease costs that reasonably relates to earning your business income.

These are just a few of the ways you can save money and reduce your tax liability as an independent IT contractor.

For more information about ways to save money as a small business owner, give one of our experienced CPAs a call today at 800-465-7532 or contact us online.

Staffing Agencies Do Not Charge Individuals

There are many beneficial reasons for independent contractors to work with staffing agencies.  Unfortunately, there are some negative views of our industry based on false pretenses.  A particular one is with respect to who pays for our services.  The straight answer to that is it is always the client.

Staffing agencies are the number one way for people to find work.  If you are a temporary employee or an independent contractor then likely you are going to find your next role through the staffing industry – and you should never have to pay for that right to work.

If you are a temporary employee in Ontario, Bill 139 made it illegal for an agency to charge you a fee to work. Whether that is to find you a job or some kind of fee tied to working, section 74.8 of the Employment Standards Act explains.

NACCB and ACSESS logosElsewhere, even if there is no legislation, both of Canada’s largest staffing industry associations have Codes of Conduct covering this subject, and both have Ethics Committees that will rule in cases where the codes might be broken.  (This is a valuable asset and a great reason why candidates should work with members of the industry association).

The Association of Canadian Search Employment and Staffing Services (ACSESS) is Canada’s largest staffing industry association.  Their Code of Ethics states “We will derive income only from clients and make no direct or indirect charges to candidates or employees unless specified by a license.”

The National Association of Computer Consulting Businesses (NACCB) Canada represents the “professional” staffing companies.  Its Business Principles state “NACCB Canada members will derive income only from clients and make no direct or indirect charges to candidates unless specified by a license.”

Everyone has a right to work and staffing agencies earn their fees from their clients who receive the many benefits of a flexible workforce.  If you are ever asked to pay a fee to a staffing agency which is not voluntary then you might want to consider whether (a) it is legal, and/or (b) is it ethically in accordance with the Industry Association Codes of Ethics.  Your options then would be to contact the industry associations for advice and support.  Here is a link to the Board of Directors at ACSESS  and a link to the Board of Directors at NACCB.

Canada’s Staffing Industry provides their clients’ access to a flexible and talented workforce, and the industry provides individuals with a myriad of job opportunities.  Credible staffing companies operate under a strict code of conduct and all job seekers should work with credible companies, who abide by the industry codes of conduct.

The Facts on Personal Services Businesses (PSBs)

The issue of Personal Services Businesses/Personal Services Corporations, or PSBs/PSCs, are a source of much hype, and much confusion in our industry. Before offering up our thoughts and opinions, here are a few facts that are important:

This is not new. The federal government amended the Income Tax Act well over 30 years ago to essentially prevent people from leaving their job with their employer, only to return immediately thereafter as a contractor so as to realize more optimal tax benefits.

The generally recognized precedent-setting case involved a high-profile sports figure named Ralph Sazio, a coach with the Hamilton Tiger Cats.

In the Fall of 2013 changes were made to the tax rates applying to PSBs that make it quite unappealing for anyone to operate under this designation.

Almost four years ago now, the CRA assessed over 300 Independent Businesses and found in the range of 115 of these to be PSBs. Over 60 of those were in the IT space alone. What is the industry doing about this?

NACCB and ACSESS logos

The IT staffing association in Canada, the NACCB, became engaged. I, as the current Chair of the Board of NACCB, and Ian MacMillan, a founding member, are leading this file.

The general staffing association, ACSESS, soon joined in. Mary McIninch from ACSESS, arguably one of Canada’s foremost authorities on Government issues relating to staffing, has also engaged in this issue.

We jointly selected one Independent Contractor case and provided financial support to the Ottawa law firm that was arguing on behalf of the Independent Contractor.

We have also been working with the CRA to endeavour to bring greater clarity to the issue, largely by helping them understand that certain criteria no longer applies in today’s business climate.

Here is the current status:

With regards to the case we were pursuing, the CRA issued a Consent Judgment. What that means is this particular contractor won as the CRA overturned its original decision. Great outcome for the Independent Contractor; however, it did not provide us with any legal precedent setting. We are awaiting decisions on approximately a dozen other cases and will decide upon the next course of action when those decisions come in.

After some setbacks with respect to people’s availability, we are back on the CRA agenda and have a meeting on June 11th, at which time we’ll be able to gauge their ability to bring clarity to this issue. This discussion will focus on various criteria used by the CRA to determine a PBS (e.g. who controls the work, who provides the tool, opportunity for profit/risk of loss, etc.)

The most important thing you can do is to think and operate like a business. Next week we will give you some tips…stay tuned!