If the CRA audits your work arrangement and decides you should have been classified as an employee rather than a contractor, you may face reassessment of your past tax returns, back taxes, interest charges, and possible penalties. The CRA uses a four-part test (control, ownership of tools, chance of profit, and integration into the business) to determine your status, and their decision can trigger significant financial and administrative consequences. Understanding what reclassification means and how to respond is crucial for protecting your tax record and finances. The CRA doesn't take your working arrangement at face value. They look behind the label and assess the real nature of the relationship. Even if a company calls you a "contractor," the CRA may disagree if the facts suggest an employment relationship. Common red flags include: - You work exclusively for one client - Your "client" controls your hours, methods, and schedule - You receive regular paycheques (even if labeled "invoices") - The company provides tools, equipment, or workspace - You cannot hire someone to do the work for you - You have minimal business overhead or risk of loss When these patterns emerge during a CRA audit, an employment standards officer may reclassify
The CRA can typically reassess up to six years of returns from the date they issue the reassessment. In cases of fraud or tax evasion, there is no time limit. Verify the exact period in your reassessment notice.
Yes. You have 90 days from the reassessment notice to file a Notice of Objection with the CRA. If the objection is denied, you can appeal to the Tax Court of Canada.
Not completely. The CRA may grant retroactive CPP contributions for the misclassified years, which count toward your CPP record. However, you or your employer will owe back contributions plus interest.
The CRA reclassification decision stands independently of what your employer says. The CRA assesses the facts of the relationship, not just paperwork or labels. Your employer is typically liable for unpaid EI and CPP.
Generally no. Employees cannot claim home office deductions on their personal tax returns. You must have been correctly classified as self-employed (or working in an unusual arrangement) to claim these expenses.