Whether you are an employee or a self-employed contractor is decided by the facts of the working relationship, not by the title on the contract. The answer changes who deducts tax, CPP and EI, which expenses you can deduct, and when you file. This page explains the CRA’s test from its guidance Employment status: Employee or self-employed, which replaced guide RC4110, how to get a ruling, and how the tax works out for the same income. It is part of the self-employment taxes hub.
How the CRA decides your status
The CRA says employment status “directly affects a person’s entitlement to employment insurance (EI) benefits” and can also affect how a worker is treated under the Canada Pension Plan and the Income Tax Act.
Which set of factors applies depends on the province or territory where the worker and the payer formed the contract, unless the contract says otherwise. Quebec uses the Civil Code and every other province and territory uses common law; a contract can say it is to be interpreted under the other system.
Outside Quebec
The key question is whether the person is in business on their own account or working as an employee. The CRA uses a two-step approach, first establishing what the parties intended and then testing that against the facts:
- The actual terms and conditions of the work decide the status, not just what the parties intended or wrote down.
- The CRA first asks the worker and the payer whether they meant to create an employer-employee relationship (a contract of service) or a business relationship (a contract for services).
- Control: whether the payer has the right to control what work is done and how it is done.
- Tools and equipment: whether the worker or the payer provides them, and who pays to repair, maintain and insure them.
- Subcontracting: whether the worker can subcontract the work or hire assistants.
- Financial risk: the degree of financial risk the worker takes.
- Investment and management: the degree of responsibility for investment and management the worker holds.
- Opportunity for profit: whether the worker can make a profit or incur a loss.
The CRA finds the parties’ intent by reading the written contract, if any, or by examining the actions and stated intentions of both parties, and considers any other relevant factors. It looks at each factor’s indicators separately and then together. Its guidance for contracts formed outside Quebec lists these indicators:
| Factor | Points toward employee | Points toward self-employed |
|---|---|---|
| Control | The payer directs and controls how and when the work is done, decides what jobs you do, has the final word, trains you, and you need permission to work for others | You work independently, with no one overseeing you; you choose when and for whom you work, can serve several payers at once, and can accept or refuse work |
| Tools and equipment | The payer supplies most tools and equipment and pays for repairs and insurance, or reimburses you for using your own | You provide the tools and equipment, pay for repairs, insurance and maintenance, have made a significant investment in them, or supply your own workspace |
| Doing the work yourself | You must do the work personally and can’t bring in anyone else | You can have someone else do or help with the work and pay them, and the payer has no say in whom you choose |
| Financial risk | You have no operating expenses, the relationship is continuous, and you are not liable if the contract is not fulfilled | You pay people who help you, run your own workspace, are hired for a specific job, are liable if you don’t fulfil the contract, get no benefits from the payer, and advertise your services |
| Investment and management | No investment made to provide the services, and no business presence | Capital investment, your own staff, and an established business presence |
| Profit or loss | You can’t make a business profit or loss, and you get benefit plans normally offered only to employees (registered pension plan, group health or dental insurance) | You can bring in and pay a substitute, or you are paid a flat fee and pay your own costs of doing the work |
A few points from the guidance that are easy to miss:
- It is the payer’s right to control the work that counts, not whether it uses that right, and control over the end result of a product or service bought is not control over the worker.
- Providing your own tools does not on its own make you self-employed. The CRA notes that skilled tradespeople such as auto mechanics often supply their own tools as full-time employees.
- Being paid more for productivity (commission, piece rates, a bonus) is not a business profit. Being paid a flat rate for the work, especially while paying your own costs, generally points to a business relationship.
In Quebec
For a contract formed in Quebec, the CRA checks the relationship against the Civil Code of Québec, looking at the carrying out of the work, the remuneration and whether there is a relationship of subordination. The CRA uses a three-step approach:
- Intent, examined the same way as above.
- The Civil Code definitions. Carrying out the work and remuneration are present in both an employment relationship and a business relationship, so the deciding factor is subordination: the payer’s right to control your activities and how the work is done.
- Comparison: whether the actual working conditions match the status the parties chose and the Civil Code definitions.
Signs of subordination listed in the CRA’s guidance for contracts formed in Quebec include the payer controlling what, who, where, when and how, controlling your absences, setting your schedule and rules of conduct, being able to discipline you, requiring activity reports, keeping your services exclusive, and a non-competition clause. When subordination is hard to judge, the CRA can also use the common-law indicators above.
Getting a ruling
If the status is unclear, the worker or the payer can ask the CRA for a CPP/EI ruling, online or with Form CPT1, by June 29 of the year after the year the question relates to. A ruling says whether the worker is an employee or self-employed and whether the work is pensionable (CPP) or insurable (EI). Requests can be made through My Account (worker or payer), My Business Account (payer), an authorized representative, or by letter to your tax services office.
- Scope: a ruling covers specific periods of work. If the terms change later, you can ask for another one.
- Appeal: either party can appeal within 90 days of being notified of the ruling.
If a worker was treated wrongly as self-employed: “An employer who fails to deduct the required CPP contributions or EI premiums must pay both the employer’s share and the employee’s share of any contributions and premiums owing, plus penalties and interest” (CRA, Understand the impact of employment status).
How the taxes differ
| Employee | Self-employed contractor | |
|---|---|---|
| Income tax | Your employer deducts it from each pay | Nothing is withheld; you pay with your return, and possibly by instalments |
| CPP | Your employer deducts CPP contributions from your pensionable earnings. Your employer contributes an amount equal to the CPP contributions it deducts. | If you are self-employed, you pay both the employee and employer shares of CPP contributions. The self-employed tax calculator shows how the two shares are deducted and credited. |
| EI | Your employer deducts premiums and pays its own share | No premiums. Self-employed people can register for EI special benefits (maternity, parental, sickness and caregiving), but must wait 12 months after registering before they can claim. |
| Expenses | “Most employees cannot claim employment expenses” (CRA); most of the exceptions, such as home office expenses, need a signed Form T2200 from the employer | “As a rule, you can deduct any reasonable current expense you incur to earn income” (CRA guide T4002), reported on Form T2125 |
| GST/HST | Not applicable | You have to register for the GST/HST once you make taxable sales in Canada and are no longer a small supplier: that happens when your taxable sales go over $30,000 in a single calendar quarter (register from that sale) or over the last 4 consecutive calendar quarters (by the end of the month after that quarter); below that you can register voluntarily. See GST/HST on freelance income. |
| Filing deadline | April 30 | If you are self-employed, or the spouse or common-law partner of someone who is and you lived together at any time in the year, your return for a tax year is due by June 15 of the following year, unless your business expenditures are mainly the cost or capital cost of tax shelter investments (then it is due by April 30); any balance owing is still due by April 30, and paying by then avoids interest and penalties. See the first-year guide. |
The same income, two ways
Two people in Ontario in 2026: an employee earning a $80,000 salary, and a contractor whose net business income (after expenses) on Form T2125 is also $80,000. The figures are computed from this site’s 2026 tax, CPP and EI data and include the basic personal amounts, the CPP and EI credits, the self-employed CPP deduction and the Ontario Health Premium. They leave out RRSP contributions, employer benefits and any other deductions or credits.
| Item | Employee | Contractor |
|---|---|---|
| Income | $80,000 | $80,000 |
| Less CPP (including CPP2) | $4,446 | $8,893 |
| Less EI premiums | $1,123 | $0 |
| Less income tax (federal + Ontario) | $14,128 | $13,234 |
| Net amount after tax, CPP and EI | $60,303 | $57,873 |
The contractor pays $4,447 more CPP and no EI, and part of their CPP is deducted from income rather than credited. The comparison isn’t the whole picture: the contractor’s $80,000 is already after business expenses, while the employee may get employer-paid benefits and is covered by EI regular benefits.
The self-employed tax calculator and the salary calculator run the same comparison for another province or income.
If you incorporate
Some contractors work through their own corporation. If the person doing the work would reasonably be considered an employee of the client were it not for the corporation, the CRA may treat the corporation as a personal services business (PSB). The CRA’s PSB fact sheet says a corporation likely operates one if you or a related person is a specified shareholder, it provides services to another business, you would be that business’s employee if the corporation did not exist, it has five or fewer full-time employees throughout the year, and its payments are not from an associated corporation.
PSB income is not eligible for the small business deduction or the general tax rate reduction, it pays an additional 5% tax, and the expenses it can deduct are limited (CRA). The same status test therefore matters for an incorporated contractor too. For the wider trade-offs, see business structures in Canada and should you incorporate your side hustle.
Records
The CRA says to keep your records for six years from the end of the last tax year they relate to (unless it lets you destroy them earlier), at your Canadian residence or place of business unless it allows another place; you are responsible for them even when a bookkeeper or accountant keeps them, and you must make them available to the CRA on request.Related guides
Sources
The figures and rules on this page come from these sources, last checked against them between September 22, 2026 and October 1, 2026. How we check facts.
- Canada Revenue Agency: Determine the employment status
- Canada Revenue Agency: Your Appeal Rights - Canada Pension Plan and Employment Insurance Coverage
- Canada Revenue Agency: Due dates and payment dates - Personal income tax
- Canada Revenue Agency: Fact sheet – Personal Services Business
- Canada Revenue Agency: What is a PSB
- Canada Revenue Agency: Employment status: Employee or self-employed
- Canada Revenue Agency: Contract formed in Quebec
- Canada Revenue Agency: Contract formed outside of Quebec
- Canada Revenue Agency: The Canada Pension Plan enhancement
- Canada Revenue Agency: Employers’ Guide – Payroll Deductions and Remittances
- Canada Revenue Agency: When to register for and start charging the GST/HST
- Canada Revenue Agency: Self-employed Business, Professional, Commission, Farming, and Fishing Income: Chapter 1
- Canada Revenue Agency: Keeping Records
- Government of Canada: Statement of contributions to the Canada Pension Plan
- Government of Canada: EI: Self-employed benefits – Who can qualify