Once upon a time, the Canada Revenue Agency (CRA), would allow you to deduct small payments made to people that you hired to do a particular job, or maybe work a few hours to cover someone, a student to hand out fliers, etc., and it was called Casual Labour. Those days are long gone. Now, when you hire someone they are either an employee or a subcontractor.
If you’re continuing to pay cash for the odd job here and there, even window cleaning, you are losing out, and cannot claim the expense. And, if you are claiming such expenses, then you are waving a red flag at CRA, and could trigger an audit. CRA will look at your wages expense, compare that to your T4s, and then want to look at your payroll records. If you’ve paid a lot out as casual labour, then CRA will determine this as wages and calculate the deductions according, adjust your T4s, and penalize you for not claiming these individuals as employees. And, you will be on the hook for those casual labour people’s CPP and EI.
CRA is trying to stop the underground economy (any activity that is unreported or under-reported for tax and GST/HST purposes; including moonlighting or working under the table). Casual labour was one of those forces that encourages this underground economy. 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. In most cases, when you pay someone as casual labour they are not reporting this as income, and, therefore you’re contributing to the underground economy. Maybe without even realizing it.
For the business owner, it can be a pain to have to take deductions off a one-off employee, however, that’s the rules and it’s best to follow them. I can certainly understand that, as you now have to calculate CPP, EI & Taxes on such a small amount of pay. Your best bet is to find someone who can work casual on days you need them, you can treat them as an employee, pay them every two weeks, and you’re good.
You can’t just pay someone as a subcontractor either to get away from not having to make deductions. They need to invoice you, provide a SIN (especially if you’re in construction as you have to do a T5018), have their own workers’ compensation coverage, and a GST/HST number is best. You probably would be better off having some kind of contract for anyone you use on a regular basis.
Remember, you can still pay people cash for those little bits and bobs that you need done. Just remember that you won’t be able to write it off as an expense, and if you’re incorporated and draw out company cash to pay them, that is now a shareholder draw and you could be taxed on it.
Casual labour is dead, and you need to decide what you’ll do with anyone going forward you need just on a few days a month or even a one-off. In the end, you’re better off treating them as an employee, even if they’re your kids.
The Rise of the Virtual Restaurant
Will Wage Subsidies Help Retail Businesses?
Suffering from Pandemic Induced Burnout?
Be Wary of Adding a Covid-19 Surcharge to your Business
What Small Businesses can do to Survive the Pandemic
How the Pandemic is Affecting Canadian Businesses
Will Covid-19 Relief Measures Affect my Taxes?
How to Manage Flexible Work Arrangements for your Business