The difference between being classified as a contractor versus an employee matters enormously for your 2026 taxes. The Canada Revenue Agency (CRA) uses a "control test" to determine your status: if your employer controls how, when, and where you work, you're likely an employee. If you have significant control over your own work, set your own hours, and can hire replacements, you're probably a contractor. Your employment contract matters, but the CRA looks at the actual working relationship, not just what your agreement says. Your status changes everything about how you file taxes and what deductions you can claim. As an employee, you: - Have income tax, CPP, and EI deducted at source by your employer - Can claim certain employment expenses (though they're limited) - Receive a T4 slip at tax time - Cannot deduct business losses As a contractor (self-employed), you: - Pay your own income tax, CPP (up to 2x the employee rate), and no EI - Can deduct most business expenses, including home office costs - Receive a T4A slip or invoice receipt - Can carry forward business losses to offset future income - May need to register for GST/HST if you earn over $30,000 If
If your business revenue exceeds $30,000 in any four consecutive quarters, you must register for GST/HST. Some contractors choose to register voluntarily even below this threshold if they can recover GST/HST on business purchases.
Yes, contractors can claim home office expenses using either the simplified method ($2 per square foot, up to 300 square feet) or the detailed method (proportional rent or mortgage interest, utilities, property tax). The [Home Office Deduction Calculator](/tools/home-office-calculator) can show you what you might claim.
A T4 is issued to employees and shows employment income, deductions at source, and CPP/EI contributions. A T4A is issued to contractors and shows contract income without any deductions at source. You're responsible for paying all your own taxes as a T4A recipient.
No. The CRA looks at the actual working relationship, not what the contract says. Misclassifying an employee as a contractor is illegal and can result in significant penalties and back taxes owed by the employer.
As a self-employed person, you pay both the employee and employer portions of CPP, which is about 11.9% (for 2026) on eligible net self-employment income between the basic exemption and the maximum pensionable earnings. This is typically higher than what an employee alone would pay.