June 9, 2011
Who Determines Entrepreneurship?
An overview of the administration of tax-raising processes suggests key aspects of tax administration are biased against self-employment
There are 2.6 million self-employed people in Canada. Even though the Canadian and provincial governments generally have formally stated positive attitudes toward self-employed people, key aspects of tax administration are biased against people being self-employed. This blocks entrepreneurship. To understand how the bias works, a brief overview of the Canadian tax administration process is needed.
A quick overview of the administration of tax raising in Canada
The Canada Revenue Agency (CRA) provides revenue-raising administration services for the Canadian federal and provincial governments. When Canadians pay taxes, the notices they receive from CRA itemises the:
• Federal tax payment;
• Provincial tax payment for the province in which they live.
They also includes deductions and payments for:
• The compulsory Canada Pension Plan;
• Employment Insurance premiums.
Canada Pension Plan
Under the Canada Pension Plan it is compulsory for contributions to be made to the Plan in equal amounts by an employer and employee. Employers must make both the employer’s and employee’s payments to the Canada Revenue Agency. Self-employed people must also contribute, paying both portions. Canadians receive payments from the fund when they retire, based on the amount of credits they have built up in the fund over their working lives. The fund is entirely financed by contributions and investments.
Canadian Employment Insurance
Under Employment Insurance (EI) (see here and here) it is compulsory for employees to make contributions (via their employer) to EI, with employers making additional contributions for employees. The employer must make the payments to the Canada Revenue Agency. Self-employed people do not make contributions to EI. Anyone who is out of work can receive unemployment benefits, but only if they have contributed to the scheme. In other words, self-employed individuals cannot receive unemployment benefits from EI.
[Note: Self-employed people can choose to join EI, pay premiums and receive payments for ‘special benefits’ covering maternity, parental, sickness and compassionate care.]
View entire study as PDF (7 Pages)
is co-founder and Executive Director of Independent Contractors of Australia. Ken is an independent contractor operating as his own business, as a researcher, commentator, advocate, lobbyist, and consultant on workplace management issues. Amongst his many activities, Ken is a published authority on independent contractor issues and directs research on related commercial and competition issues. His strongest interest is management issues and the development of internal and external relationship building for organizations. Within this framework he promotes the concept of 'markets in the firm'. Ken was ICA's representative at the 2003 and 2006 International Labour Organisation debate on the 'Scope of Employment Relationship.' The ILO outcomes formed the conceptual basis for Australia's Independent Contractors Act. Ken’s book Independence and the Death of Employment is published by Connor Court.