Many independent contractors are aware of, and are of course keenly interested in, the CRA initiative that began over 6 years ago in 2010. Independent contractors’ employment statuses were assessed through several audits that resulted in many deemed to be Personal Services Business (PSB’s). Since then, Eagle has provided resources, presentations and information on the topic, and recently, many of our followers have asked for updates on this issue.
NACCB is the industry association that represents IT Services organizations like Eagle in public policy issues. Eagle is an active member of NACCB and your author currently also serves as the President of the Ottawa Chapter. The NACCB is very active on this PSB issue and works with the CRA, other associations like ACSESS, industry members and contractors directly affected in this assessment initiative.
Here’s a quick recap for those not aware of the details, plus an update on where we are today:
The original audit took place a little more than 6 years ago, over a 13 month period. It identified 300 files, of which 112 were deemed PSB’s or, more specifically, “incorporated employees” (61 were IT-based while another 51 were “professional”). As such, these files were reassessed relative to small business deductions and expenses claimed that were subsequently disallowed, as well as income. The net result of which was thousands of dollars in assessments owed by the business.
As a result, NACCB and other associations worked closely to understand how legislation was interpreted differently by industry than the CRA. To that end, NACCB agreed to work with and support a number of individuals who had been assessed, with a goal to get to a better legal understanding. They engaged a law firm to represent them and file notices of objections, effectively legally appealing the assessment. At the same time, the NACCB continued to have dialogue through multiple meetings with stakeholders and CRA, while each of the 16 cases worked their way through the legal system.
The first case to go to trial resulted in a consent to judgement before the hearing started, which meant CRA was dropping the judgement against this individual. It was then agreed the best approach going forward was to continue to allow every other subsequent case to proceed on their own. The result was that many were deemed not to be PSB’s and dropped while others were confirmed to be a PSB. Those deemed PSB’s were subsequently appealed and dropped.
In the summer of 2015, CRA vacated the remaining 3, meaning all 16 were resolved positively in the favour of those assessed. It is very important, however, to note that each case stood on its own and the individual circumstances of each were different and needed to be considered in each and every case.
While the appealed cases were one track towards better clarity, there was an ongoing dialogue with NACCB and other associations throughout to help industry better understand the legislation. This allowed us to advocate and communicate with members and independent consultants to run their business accordingly. To that end, in April of 2015, CRA issued new guidelines that help IT Consultants determine their employment status.
This article from the CRA is well worth reviewing and provides some clarification. If you have any other questions, please leave them in the comments below.