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For many Canadians, much of their time is spent at work. Of course there are farmers and bankers and teachers and bus drivers among us, plus professions that many of us have yet to imagine. But the one thing that we all have in common is that we go to work to get paid so that we have income to enjoy the rest of our lives. And, much to the chagrin of many Canadians, employment income is where we pay the bulk of our taxes. But don't despair, with some planning and a better understanding of how the Canada Customs and Revenue Agency (CCRA) views employment income, we just might be able to help you end up with a few more dollars in your pocket after all is said and done.

What Is Employment Income?

Employment income includes all amounts received in a year as salary, wages, commissions, director's fees, bonuses, tips, gratuities, and honoraria. You should report all these items — which have been reported by your employer on your T4 slip in box 14 — on line 101 of your personal tax return. This includes commission income, which is reported again on line 102. You should record any income from the list above that is not reported on your T4, but was received by you, on line 104 "Other employment income."

Employee Versus Self-Employed

You may be employed on a commission basis, work out of your home part of the time or all of the time, or work at your employer's place of business. You may consider yourself to be self-employed, but the taxman may think differently. You see, the CCRA makes the distinction between self-employed and employed based on several factors or tests. The distinction can make a huge difference in your taxable income. If you are an employee, the Income Tax Act restricts the expenses that can be deducted from your employment income. If a deduction is not specifically mentioned in the Act, the answer's simple — it's not deductible. Self-employed individuals do not have these same restrictions.

If possible, in most situations it's advantageous to arrange your business relationship so that you are an independent contractor rather than an employee. Independent contractors are entitled to claim deductions for many expenses not deductible by an employee. Self-employment is one of the last great tax shelters. The following table illustrates the factors that the CCRA considers in its determination of whether you are an employee or an independent contractor.

FACTORS DETERMINING EMPLOYEE VS. INDEPENDENT CONTRACTOR STATUS
Criteria	Employee	Independent Contractor
Supervision or Control	Employee is under the direction and control of the employer. Control may not necessarily be exercised but right to do so is.	No direct control or supervision exists.
Instructions	Employee complies with instruction about when, where, and how work is to be performed.	Works his own schedule and does the job his own way.
Relationships	The individual continues to work for the same person/company year after year.	Hired to do one job. No continuous relationship.
Hours	Hours and days are set by the employer.	Individual is master of his own time.
Exclusivity	Must devote full time to employer's business. Restricted from doing other work.	Free to work when, and for whom, he chooses.
Payment	Paid in regular amounts at stated intervals.	Paid by the job on a straight predetermined basis.
Materials	Usually employer furnishes tools.	Furnishes his own tools.
Profit or Loss	Cannot realize a profit or loss by making good or bad decisions.	Can realize a profit or loss as a result of his services.
Termination	Can end his relationship with employer at any time.	Agree to complete a specific job. Is responsible for satisfactory completion or is legally obligated to make good.
Integration	Employed as a part of business; services are an indispensable, integral part of that business.	Person may perform work that is integral.

Provided by CDG Books Inc. Authors of "Taxes for Canadians for Dummies"