A determination of whether an employee or independent contractor relationship applies between parties will significantly impact tax obligation and liability. The determination will inform an employer's or worker's withholding and remittance obligations with respect to payroll and GST/HST and in some circumstances, cause the "personal services business" rules to apply to a corporation.

Whether an employee or independent contractor relationship exists is a question of fact. There is no single factor that determines the distinction in and of itself, nor a set formula. The factors vary with the circumstances. The central question in evaluating the relationship is whether the worker is performing services for their own business or as an employee.

Justice Mainville in 1392644 Ontario Inc. [Connor Homes] v. Canada (National Revenue), 2013 FCA 85 provided for a two-step method to address this central question. Under the first step of the inquiry, the subjective intention of the parties is ascertained by examining the written contractual relationship between the parties, and or the actual behaviour of the parties. The second step of the method requires a consideration of the traditional factors outlined by the Federal Court of Appeal in Wiebe Door Services Ltd. v. Minister of National Revenue, [1986] 3 FC 553 [Wiebe Door] and confirmed by the Supreme Court of Canada in 671122 Ontario Ltd. v. Sagaz Industries, 2001 SCC 59 [Sagaz], in considering whether an objective reality sustains the subjective intent of the parties. Factors considered in Sagaz and Wiebe Door include the level of control the employer has over the worker's activities, whether the worker provides his or her own tools or equipment, whether the worker can subcontract work, the chance of profit and risk of loss taken by the worker, the degree of responsibility for investment and management held by the worker, and the integration of the worker in the employer's business in determining the central question of whether the person who has been engaged to perform the services is performing them as a person in business on his own account.1

The two-step method determines whether the parties' subjective intent, evidenced by their written agreement and actions are grounded in a verifiable objective reality provided by the Sagaz and Wiebe Door factors.2

In some cases, where factors showed an employment relationship despite independent-contractor intent, or where there was a lack of specific intent one way or the other, the employment relationship was held to prevail.3

The Federal Court of Appeal considered the factors in light of independent contractor agreements between 39 truck drivers and a trucking company in TBT Personnel Services Inc. v. M.N.R., 2011 FCA 256. The court found that on balance, the factors favored an employment relationship, contradicting the written intention provided in those agreements.

The Tax Court of Canada in Connor Financial Services International Inc. v. M.N.R., 2017 TTC 242 found two workers to be employees of the appellant corporation. Despite invoices provided for contract work, an employment relationship was determined in examining the total relationship of the parties. In this case, the employer exercised significant control over the workers, the workers had undergone training, and there was an expectation that workers were to be present during office hours. Also, equipment and tools were supplied by the corporation and the workers bore no expenses.

In Lyon v. The Queen, 2018 TTC 89, the worker was an administrative clerk at a medical clinic. The Tax Court of Canada allowed the worker's appeal and found that an employment relationship was applicable. All services provided by the worker were supervised by her employer. There was no discretion as to how those services were to be performed. Although the worker worked from home, the non-traditional work environment was not found to prelude an employment relationship.

In Anderson v. M.N.R., 2021 TCC 28, the worker was an insurance adjuster whose compensation was paid to his corporation by the payer. The Tax Court of Canada held that an independent contractor relationship applied between the worker's corporation and the payer. The evidence did not clearly establish an intention to create an employment relationship or independent contractor relationship. Moving to the Sagaz and Wiebe Door factors, the court weighed the evidence in its totality in finding that the factors tilted towards a contractor relationship. On one hand, the payer was in a position to control the result or quality of work done by the worker, and the payer had provided the worker tools. However, the worker maintained a chance for profit, and bore some risk of loss. Ultimately, the court found the totality of the relationship pointed towards a contractor relationship. For further information on issues where a corporation provides remuneration to a worker's corporation, see: "Are you walking into a tax disaster - Incorporated contractors & taxes (part I)" and "Staying onside - incorporated contractors & taxes (Part II)".

Where an owner-manager provides services to their own company, not all of the above Sagaz and Wiebe Door factors may be relevant in an employee or independent contractor determination. For instance, an analysis concerning the level of control the employer has over the worker's activities in a sole-shareholder and director situation may be frustrated. Nonetheless, the totality of the circumstances will always be considered. In Pluri Vox Media Corp. v. R., 2011 TCC 237 a lawyer was the sole shareholder and controlling mind of a media company. The Tax Court of Canada focused on the lawyer's role as director of the corporation in finding that an employment relationship applied. Relevant factors were the level of integration in the corporation, contribution to the corporation's expectation of profit and not his own, the fact no services were provided on his own account as a lawyer, and that remuneration was based on the corporation's profits.

Where the owner-manager was not found to be an employee, the factors pointed away from an employment relationship. In 765750 Alberta Ltd. v. Minister of National Revenue, 2007 TCC 149, the Tax Court of Canada allowed the sole director's appeal in finding that she was not an employee of her corporation. In this case, the sole director had demonstrated a clear intention to provide services not as an employee. She was aware of the difference between an employee and independent contractor. It was noted that she had consulted her financial advisor on the issue as well as having gone through two previous audits on same. Furthermore, it was noted she had engaged both employees and independent contractors in the past.4 With respect to the level of integration and chance of profit and risk of loss, it was found that if the company were to fail, she would be able to apply her management skills elsewhere.


The employee and independent contractor determination will depend on the facts of each case. As provided by the Supreme Court of Canada in Sagaz, "It bears repeating that the above factors constitute a non-exhaustive list, and there is no set formula as to their application. The relative weight of each will depend on the particular facts and circumstances of the case".5 While fact dependent, the intention and factors applied to the totality of the circumstances offer some guidance on a determination of whether an employment or independent contractor relationship applies.


1. 671122 Ontario Ltd. v. Sagaz Industries, 2001 SCC 59 at para 47 [Sagaz].

2. Wolf v. R., 2002 FCA 96; Royal Winnipeg Ballet v. Minister of National Revenue, 2006 FCA 87.

3. A-1 Lumpers Inc. v. Minister of National Revenue, 2012 TCC 243; Integranuity Marketing Ltd. v. Minister of National Revenue, 2012 TCC 4, Aquazition 2007 Ltd. v. Minister of National Revenue, 2011 TCC 77.

4. 765750 Alberta Ltd. v. Minister of National Revenue, 2007 TCC 149 at para 9.

5. Sagaz, supra note 1, at para 48.

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