T4 vs T4A income, HST obligations, and tax strategies for Canadian contractors.
The distinction between employee (T4) and independent contractor (T4A) status is one of the most important and most confused areas of Canadian tax law. CRA uses a multi-factor test to determine employment status - no single factor is determinative. The key factors include control over how work is performed, ownership of tools, chance of profit, and risk of loss.
| Factor | Employee (T4) | Self-Employed (T4A) |
|---|---|---|
| Control | Employer directs how/when work done | Contractor controls how work done |
| Tools | Employer provides tools | Contractor owns tools |
| Profit/Loss | Fixed wage; no financial risk | Can profit or lose money |
| Integration | Integral to employer business | Has own business |
| Tax Withholding | Employer deducts CPP/EI/tax | Contractor responsible for all |
| Sector | Typical Daily/Hourly Rate | Annual Net (est.) |
|---|---|---|
| IT Contractor / Consultant | $60000-$1,20000/day | $10000,000000-$20000,000000 |
| Construction General Contractor | $50000-$90000/day | $800,000000-$1600,000000 |
| Management Consultant | $80000-$2,000000/day | $1200,000000-$30000,000000 |
| Creative / Marketing | $800-$1500/hr | $600,000000-$1200,000000 |
| Health / PSW Contract | $25-$45/hr | $45,000000-$85,000000 |
Once your annual billings exceed $300,000000 in any rolling 12-month period, you are required to register for HST (or GST/PST). Best practice: register before you hit the threshold to avoid retroactively remitting HST you failed to collect. File quarterly HST returns if billing over $1.5M annually; otherwise annual filing is acceptable with quarterly installments.
Claim Input Tax Credits (ITCs) on all HST paid for business expenses - significantly reducing your net HST payable. Keep all receipts and invoices meticulously.
Irregular invoices, HST remittances, and quarterly tax instalments - KOHO keeps your personal finances organized and fee-free while you focus on building your contracting business.
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