When is a Worker an Employee for Tax Purposes?

Jun 30, 2017

On April 6, 2017, the Tax Court of Canada decided Coathup v. MNR, 2017 TCC 54, finding the worker was an employee. Tax Foresight correctly predicts the outcome with 84% confidence.

How consistent was this decision with prior decisions? Our Tax Foresight analysis of the case follows.

In Coathup, the Court considered whether Vanstone, a music teacher who worked for a music school less than a year, was an independent contractor or an employee. Coathup, who ran the school, paid Vanstone as an independent contractor. The CRA assessed Vanstone as an employee.

The Court found there was no common intention between Vanstone and Coathup on Vanstone’s employment status. Certain facts indicated that Vanstone was an independent contractor. For example, Vanstone had a certification for the music program, decided the teaching methods used and was expected to pay substitute teachers herself.

Ultimately, however, the Court found stronger factors indicating Vanstone was an employee. Coathup controlled how Vanstone communicated with the students’ parents, required daily progress updates, and owned the musical instruments and books. Vanstone also had no risk of loss because Coathup paid her whether students attended lessons or not. Based on this combination of factors, the Court found an employer-employee relationship. The decision highlights the importance of taking all of the relevant factors into account to ensure a worker’s status.

Tax Foresight Case Analysis

  • Tax Foresight correctly predicts the Coathup case outcome with 84% confidence.
  • If Vanstone had her own office or studio, Tax Foresight predicts Vanstone to be an employee with 63% confidence.
  • Removing Vanstone’s requirement to report to Coathup, Tax Foresight predicts Vanstone to be an employee with 51% confidence.

Worker Insights

  • The outcomes in worker cases before the Tax Court are closely split with 52% of cases being an employee outcome.
  • Even where both parties intend for the worker to be an independent contractor, the workers are employees 43% of the time.
  • Workers who are required to wear a uniform are found to be independent contractors 36%of the time.
  • Each time you run our Worker Classifier, you apply nearly 600 cases to your client’s situation.

Want to make sure you are considering all the new worker cases when you give your advice? Tax Foresight reflects the newest case law and takes every case into account when providing its prediction.