20 January 2000 External T.I. 9924815 - EMPLOYMENT AGENCY WORKERS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Does subsection 6(6) of the act exempt board and lodgings received by a self-employed by placement and employment agencies?

Position: No.

Reasons:. Subsection 6(6) will exempt certain amounts received by virtue of an office or employment. The CPP and EI may contain provisions to deem self-employed individuals hired by placement agencies to be employee for purposes of pensionability and insurability, these deeming provisions do not extend to the Income Tax Act.

		1999-000473
XXXXXXXXXX 	Karen Power, C.A.
(613) 957-8953
Attention: XXXXXXXXXX 

January 20, 2000

Dear Sirs:

Re: Subsection 6(6) Benefits & Self-Employed Placement
and Employment Agency Workers

We are writing in response to your letter dated September 13, 1999, concerning the taxation and insurability of board and lodging provided to self-employed placement and employment agency workers. You have asked that we provide comments on the following questions:

1. Given the deeming guidelines which in effect treat the self-employed (but unincorporated) placement or employment agency worker as an employee (for purposes of EI and CPP deductions at source), would subsection 6(6) of the Income Tax Act (the "Act") have applicability to such an individual so as to exclude special work-site benefits from the taxable income of the individual? Please note that a T4 must be completed for the self-employed worker except that Code 11 for "placement agency - self-employed" must be entered in the employment code box on the T4.

2. Would board and lodging allowances paid to the self-employed unincorporated worker be considered insurable given the deeming guidelines and our interpretation 5-991410? Would board and lodging allowances paid to the self-employed unincorporated worker be considered pensionable?

3. You have asked that we confirm that the subsection 6(6) benefits are now included in insurable earnings is due to a change in the Insurable Earnings and Collection of Premium Regulations which came into force on January 1, 1997. It appears that subsection 6(6) benefits were previously specifically excluded from insurable earnings but that exclusion no longer exists under the new regulations. Accordingly, beginning January 1, 1997, additional EI premiums should be withheld from employment income if subsection 6(6) benefits are provided.

4. If subsection 6(6) benefits are insurable, the insurable earnings Box 24 on the T4 will exceed the employment income Box 14. Please confirm that this will not trigger a P.I.E.R. report exception provided that EI premiums in Box 18 are the appropriate percentage of EI earnings.

Our Comments

Question 1:

Where a placement agency is involved, it is always a question of fact whether individuals who are hired by a placement agency (the "Agency") and who perform services in Canada for a resident of Canada (the "Client") are employees of the Agency, employees of the Client, or independent contractors. To make a determination of this sort, one has to review not only the contracts (verbal or written) between the Agency and the individual and the contract between the Agency and the Client but also, more importantly, the facts and circumstances surrounding the work that the individual does (i.e. the actual working conditions in/during the performance of the work) for the Client.

After such a determination, although an individual may be considered self-employed, there are specific regulations for purposes of the Canada Pension Plan ("CPP") and Employment Insurance ("EI") which provide that the remuneration received by an individual hired by a placement or employment agency shall be considered pensionable and insurable. However, these regulations do not affect the income tax treatment of the payments received.

Subsection 6(6) of the Act allows certain allowances received by individuals employed at special work sites and remote work locations, by virtue of an office or employment, and, in respect of personal or living expenses, which are normally considered to be a taxable benefit under paragraph 6(1)(b) of the Act, to be excluded from income. As noted above, the provisions in the CPP and EI regulations do not apply for purposes of the Act. Accordingly, in our view, subsection 6(6) would not apply to board and lodging allowances provided to self-employed individuals.

Questions 2, 3 and 4 deal specifically with the provisions of the CPP/EI Acts and Regulations which are the responsibility of the CPP/EI Eligibility Division. We have forwarded a copy of your letter to the attention of Mr. Rémi Côté for his consideration.

We trust our comments will be of assistance to you.

Yours truly,

Roberta Albert, C.A.

for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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