Employee or subcontractor? How the CRA decides, for BC trades
A worker is an employee if, in practice, you control how and when the work is done, they work only for you, use your tools and cannot make a profit or loss. They are a self-employed subcontractor if they run their own business: they set their price, supply their own tools, can hire helpers, carry the financial risk and work for other customers. What the contract says counts, but the CRA decides on how the job actually runs.
Updated October 27, 2026. Based on CRA guidance linked below.
The test in two steps
Step 1, intent. What did you both mean to set up: a job (a contract of service) or a business relationship (a contract for services)? A written subcontract and the worker's own GST number support the second.
Step 2, the facts. The CRA checks whether the working relationship matches that intent, looking at:
- Control. Do you have the right to direct how, when and where the work is done? The right matters even if you never use it.
- Tools and equipment. Who owns, supplies and maintains them, and has the worker made a significant investment (a truck, a trailer of tools)?
- Subcontracting and helpers. Can the worker send someone else or hire a helper at their own cost?
- Financial risk. Does the worker pay their own expenses, fix their own deficiencies for free and carry fixed costs?
- Investment and management. Does the worker have a business presence: a business name, insurance, WorkSafeBC coverage, advertising?
- Opportunity for profit. Can they bid jobs, set rates and work for other contractors?
These factors come from the CRA's former guide RC4110 and the court cases it summarized; the CRA's current page says all the facts, including the actual terms and conditions, decide status, not just intent (CRA: employee or self-employed, modified January 6, 2026).
Worked example: two framers on the same crew
- Framer A works 45 hours a week for one builder, is paid by the hour, uses the builder's nail guns and compressor, starts when told and has no other customers. Invoices say "subcontractor". This looks like an employee.
- Framer B quotes per square foot, brings his own truck and tools, sends his own helper when he is short, carries his own liability insurance and WorkSafeBC account, and frames for three builders. This looks like a subcontractor.
What it costs to get it wrong
- If a "subcontractor" is ruled an employee, the payer generally owes both the employer and employee shares of CPP and EI it failed to deduct, plus penalties and interest (CRA: former guide RC4110).
- The penalty for failing to deduct is 10% of the amounts not deducted, 20% for a repeat failure in the same year if it was knowing or grossly negligent, plus daily compound interest (CRA: payroll deductions).
- Directors can be personally liable for unremitted source deductions.
- WorkSafeBC and BC Employment Standards (vacation pay, stat pay, overtime) apply their own tests and can reach a different answer. See stat holiday pay in BC.
How to get a firm answer
Either the worker or the payer can ask the CRA for a CPP/EI ruling, which officially decides whether the work is pensionable and insurable employment (CRA: CPP and EI rulings).
Case study: a drywall subcontractor at the Tax Court.
FAQ
Does a signed subcontractor agreement settle it?
No. It supports intent, but the CRA looks at how the work is actually done.
Do I issue a T4 or a T5018?
Employees get a T4. Construction subcontractors paid $500 or more in the year are reported on a T5018. See our T5018 page.
Can a worker be an employee for one company and a subcontractor for another?
Yes. Status is decided relationship by relationship.
Is a worker with a GST number automatically a contractor?
No, but it is one sign of a real business.
If you have regular "subs" who look like Framer A, talk to your accountant before the CRA asks.