The Casual Labour Myth

I don’t know where the whole concept of hiring people under a label of “casual labour” and paying them cash came from. I have seen other websites (in Canada) that even advise that paying cash or casual labour is okay. They are wrong for many reasons.

CRA Doesn’t Recognize Casual Labour

Paying someone out of the til and then trying to expense this in the business is something that a lot of businesses want to do. The problem is, it isn’t permitted by the Canada Revenue Agency. Trying to write off this expense is a big flag to the CRA and could open up a company to an audit. At the very least, the company will be liable for any payroll deductions that are owed, including CPP, EI, and (possibly) tax deductions. Whenever someone is hired, they must be either an employee or a subcontractor. Therefore, even the kid you hire for an afternoon to help clean a store, or the old guy who really knows how to make the trim for that cabinet, has to be on payroll or have their own company, and be treated accordingly.

What About WCB?

Many businesses are required to cover employees with WCB. If you are a contractor, then your subcontractors must also be covered, unless they have their own coverage. Part of the responsibility of the business is to ensure that WCB coverage exists. This means that if someone is a subcontractor, it is necessary to check. The subcontractor should have their own WCB number that can be checked with the provincial board, usually online. If a WCB audit is conducted, then the business becomes liable for the amount of coverage that was supposed to be paid to WCB, plus any possible penalties.

subcontractor, check GST registration, contractor accounting, bookkeeping services, business tax, tax returns, subcontractor bookkeeping, subcontractorContractors, some of your subcontractors also want to charge GST! Ensure that they have a GST number, and that it is still valid. I can’t count the number of times that I’ve seen contractors pay the GST on a subcontractor’s invoice only to find that the number wasn’t valid. And that means that the contractor is unable to use the GST paid as an ITC, instead it becomes part of the expense. It is better for the business to have the ITCs, as that is 100% refundable, rather than as an expense, which only saves the tax rate (for combined small businesses in Alberta, this is 14%). Which would you rather have? You can check that on the CRA site here.

Your Best Option

Any employer should make sure that anyone hired, whether for a few hours or a few days, is either put on payroll or has a contract. Putting someone on payroll requires obtaining their social insurance number, date of birth, address, and setting a rate of pay. It also requires that deductions are done correctly. This can be found on the CRA website (here).

If a contractor is hired, then it is best to have a contract in place. This should include the rate of pay, whether hourly or by the job, as well as the pertinent information including their business number or SIN. Make certain that any subcontract states that the subcontractor is responsible for paying income taxes, CPP, and that they are a subcontractor, not an employee.

And it’s always a good idea to review any labour agreements you have with your accountant to be sure that they are in line with current legislation. If you have questions, please contact me, and I will be glad to help.

Personal Vehicle Expenses for Small Business

Many small business owners are the only person in their business, or there is only one or two others. There are some specific rules that should be followed in order to make your life easier when using a personal vehicle and tracking those vehicle expenses.

  1. Always keep a log of km driven.
    • This log needs to have the start and end km as per the vehicle odometer,
    • the date of the trip, and
    • the purpose of the trip. This means that if it was personal, just write “personal”. If it’s for business, write why (i.e. “Picking up office supplies at Staples”).
  2. If you’re a sole proprietor (or partnership), keep all of the receipts associated with your vehicle. This includes maintenance, fuel, supplies (washer fluid, etc.), insurance, etc.
  3. If you’re company is incorporated you don’t need the receipts, but it won’t hurt to keep them in a separate (personal) file.
  4. Whenever possible, double your trips. This means if you can run a personal errand (pick up milk at store, for example) at the same time that you are delivering a business package or meeting a client, then you can write the whole trip as a business trip. This is to your advantage!
  5. If you are registered for GST, don’t forget to separate out the GST from the base expenses and claim your GST input tax credits.

ProprietorshipID-10021166 (and partnerships) use a percentage of the vehicle expenses each year to figure out how much the business expenses are. This is why there must be a km log and all of the receipts have to be kept (and added up). It’s the only way to accurately know what is business and what is personal. And the CRA can ask for this log in any audit, including a GST audit.

A corporation can claim (for 2012) $0.53 for the first 5000 km used in each driver/vehicle (it has been interpreted that if one driver is using two personal vehicles, the total is for the driver – this is something to be careful of). After the first 5000 km, the rate drops to $0.47 per km. Also note that this amount includes GST! This means that you can claim ITC’s for the GST portion of these km. Remember that while an expense reduces your taxable income by your tax rate, an ITC credit reduces the GST payable dollar-for-dollar, so they are more advantageous in that sense.

If you note the rules on this, a business can have higher vehicle expenses on a per km basis than if the costs are split. Since only corporations can pay for a personal vehicle on a per km basis, this is one of the advantages of incorporating.

Please note that these rules are for personal vehicles used for business! If an incorporated company owns a vehicle, there are different rules.

Questions? Contact us!