Few Canadians relish doing their taxes, but for low-income workers classified as independent contractors, the process can be particularly frustrating — and costly.
The practice of classifying workers who are de facto employees as independent contractors has crept into more and more industries over the past 20 years, says Deena Ladd of the Workers’ Action Centre in Toronto. Cleaners, truck drivers, couriers, construction workers, door-to-door salespeople, bank staff, and even restaurant workers, along with rising numbers of app-based gig-economy workers such as ride-share drivers and bike couriers, are often told by their employers that they have to sign a contract as an independent contractor or register as a business to get a job. And many of these workers are given little to no information about their tax situations.
Workers who are self-employed in this way, particularly younger ones, often “think it’s really good because they’re getting $20 an hour, then they’re getting $20 an hour in their hand,” says Ladd. “But I think they’re not really understanding the connection to their pension and to unemployment. To me, that’s really worrying, because we see it when it goes wrong and when it’s not working, and people get put in a really difficult situation.”
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Employees have income tax and Canada Pension Plan contributions deducted at the source, but self-employed workers are on the hook for taxes and twice the amount of the CPP contributions they’d pay as an employee, as employers are responsible for 50 per cent of that cost. Though deductible expenses can help balance this out, many workers don’t realize they can deduct expenses and so fail to save receipts or other documentation; others have no deductible expenses, as their employers cover materials.
Scott Shelley, who delivers for Foodora in Toronto, knows what it’s like to delay filing taxes out of fear of the unknown. After beginning work as a courier in 2016, he waited two years before tackling several years of back taxes. When he heard more experienced couriers talk about putting money aside for taxes, he says, “I would start freaking out, because I didn’t save up anything. Unless [couriers] do individual research, they wouldn’t know how much to put away.”
Now he’s interested in helping other bike couriers understand their rights. Together with other couriers, he organized a workshop with accountant Patrick Payne to answer tax questions for Toronto cyclists working with such apps as Foodora, UberEats, and Skip the Dishes and to help inform them about such issues as eligible deductions and HST.
“What I’ve found is that the couriers I’ve worked with often are behind on their taxes,” says Payne. “I’ll get them caught up, might not hear from them for two years, and then I’ll get them caught up again, because they have difficulty with the organizational aspect, and they just need to be out on the road, like, 10 hours a day in order to make money. They have to work really, really hard to make decent wages.”
And they’re often unprepared for the financial consequences. “Because they don’t realize their tax liability and the fact that they’re self-employed [means that] they will have a bill of some kind, if they do come in and [file] even two years’ worth of taxes, they could easily owe, let’s say, $3,000 a year — $6,000 total, plus interest and penalties,” Payne says. “And that’s enough to really put them behind when they’re only grossing less than $40,000.”
Payne worries about the “vicious cycle” he sees with many couriers, who work extra hours to pay off last year’s tax bill and then end up with an even larger bill next spring. “That’s why they just don’t end up doing it. They just don’t end up doing their taxes, because they’re like, ‘Well, I know I’m going to end up owing the government more money than I can afford,’” he says.
That’s what happened to Shelley after he filed taxes as a courier for the first time. “I was terrified that I would owe a bunch of money, but I was going into spring, so I knew I’d be making money over the summer,” he says.
Shelley believes that the difficulties he and other couriers have experienced in trying to find information on taxes and company policies are meant to reinforce the fact that workers aren’t employees. “They’re being as hands-off as they possibly can to kind of bolster the idea that we’re just contractors and that they’re not really liable to tell us everything,” he says.
A spokesperson for Foodora told TVO.org in an email that “our rider management team has developed a few initiatives aimed at helping arm our rider community with info around how to file taxes or make WSIB claims”: it informs riders during their initial orientation session of how to file WSIB claims and maintains an online resource, and this winter distributed an 11-page tax guide designed by the company and offered tax-help sessions in Toronto and Vancouver.
Erendira Bravo worked in construction for a decade after immigrating to Canada. In late 2014, she says, a painting company forced her to register her own business in order to get a job — she’s still paying off the $8,000 debt she racked up with the Canada Revenue Agency in 2016.
“At the end of the year, I found out that I owed a lot of money to the government that I couldn’t pay, because it was very hard for me to survive with $20 an hour, paying a lot of taxes and not receiving any kind of benefit,” she says. “I have to pay my taxes like a company, but I didn’t have expenses because I don’t have a car — I never buy materials or tools or paint to deduct from my taxes.” In early 2016, she took her employer to the Ministry of Labour over a separate harassment issue and discovered that she’d been illegally misclassified.
According to Ladd, such misclassification both places an unfair burden on workers and results in lost revenue for federal and provincial governments and for social safety nets. “The CRA needs to really be working with the Ministry of Labour and really tackling those sectors of work where misclassification has become rampant,” she says. “But not penalizing the workers for that — going after the employers, because the workers don’t have any power in this situation.”
Christine Bujold, communications adviser to Minister of Labour Laurie Scott, told TVO.org via email that “the [current] misclassification provisions [in the Employment Standards Act] have been in place for just over a year, and as with all policies they are and will continue to be reviewed to see if changes are required and that they reflect the 21st century workplace and labour market.”
“It’s important to note that each person’s situation is different,” she added. “The Ministry of Labour is responsible for the enforcement of the ESA, as such only an employment standards officer can determine, either during an inspection or an investigation, what entitlements an individual may or may not have. The Canada Revenue Agency has responsibility to enforce the Income Tax Act.”
In an emailed statement to TVO.org, a spokesperson for the CRA noted that employment status affects how workers are treated under legislation for employment insurance, income taxes, and the CPP and that either workers or businesses can contact the agency for a ruling on status: “When non-compliance is identified, the CRA educates the taxpayer on their income tax obligations, ensures the correct returns are prepared and filed, and takes the necessary enforcement actions to ensure compliance with the law.”
Former NDP MP Laurin Liu tabled a bill on unpaid internships in 2014 and advocates for precarious workers. “There is a widening class of workers who are precarious and who aren’t precarious in the way that we traditionally imagine them to be, so a lot of services aren’t really catching up to how quickly the economy is changing,” she says.
Liu, Ladd, and Payne all agree that our tax system needs to catch up to the realities that today’s workers face and offer more resources to contractors and self-employed workers — whether that’s increased assistance in filing taxes or changes to the system that better reflect the variety of situations workers find themselves in. “Our taxes are not caught up with the 21st century,” says Payne.
“Employers are avoiding their responsibility of being employers and not paying into tax, and, in fact, we are losing a lot of revenue through this misclassification,” says Ladd. “So it’s important that workers are protected and they’re covered by legislation and that everyone’s paying their fair share of taxes.”