Canada Revenue Agency (CRA) has a two-stage process for determining the working relationship. First, they examine the intent. How did the two parties intend to define their relationship? Contracting parties are free to establish a relationship as they see fit. The easiest means of establishing intent is to draft an agreement that clearly states the type of relationship. If the intent is not clear, then CRA will examine the relationship based on a number of elements listed below:

• Control – How much freedom does the worker have to perform their duties. The more control the worker has in setting their own deadlines, hours and methods, the less likely he or she is an employee.
• Provision of tools – who provides the tools to perform the job. For example, computers, software, hammers and wrenches. The more tools an individual supplies, the less likely he or she is an employee.
• Degree of financial risk – the likelihood a worker will have to cover costs personally whether he or she works or not. The more risk a worker has, the less he or she is an employee.
• Opportunity for profit – can the worker pick and choose those contracts that will maximize a profit. An employee is usually directed on what he or she works on, and irrespective of how well he or she does, a guaranteed salary is paid. If a subcontractor identifies efficiencies that save costs, he or she will reap the benefits.
• Responsibility for investment and management – does the worker have to personally put up money to perform the work. Employees usually have no capital outlays and is paid no matter the results.

It is important to get the classification correct as misclassifying an employee as a subcontractor can result in penalties on failure to submit withholding taxes to CRA.