tips for contract flying

[spool up time]

Embarking on my first contract gig. It's seasonal and it's in canada. Looking for advice on how to handle the finance side of things. Heard the suggestion that a pilot should start up a numbered company and pay yourself as an employee of that numbered company and utilizing all expenses deductible by ccra. trying to find best option. thanks in advance.

[trey kule]

First of all, contract is something that is rather closely defined by CRA folks...If you are working only for one company, they look at who pays the expenses..Do you pay them and bill with a 10% surcharge.. If they pay them directly, or give you a company credit card for other than fuel and aircraft expenses, you are considered an employee.
This is brief and broad stroked, but check it out well..I ran into a probem with a contract several years ago.

Secondly, if you have a company you need to apply for a GST, Workmans comp for the province, or provinces you will work in, and pay UIC, CPP etc...Workman's comp is a real sticky point with the CRA..If you are not paying that yourself they view you as an employee.

The word contract is bandied around alot, but it really has to be laid out well to work properly from a tax point, and it is difficult to start writing things off unless you are billing for them or they are a clear business expense...easier to stay out of trouble with these folks than get out of trouble.

As an aside, you should be more concerned with defining work days, duty days , and days when you are not flying, as these generally will cause you more grief in a contract. Again, in general terms,,, Once you leave home you should be getting paid every day until you return.

I have many years of contract work under my belt. Some very good experiences..Some bad...

[sky's the limit]

Trey is mostly correct, a few things to add.

"Contract" can mean a couple of things. You can be a contractor in the sense you are only signing on to an outfit for a season, and are simply a part-time employee. In this case you are paid as employee, covered in all the important ways including, UI, CPP, WCB, tax deductions, etc, etc. You still file tax returns as a "person," in the normal manner. You're just agreeing to sign up for a fixed term.

As Trey says, to be a "contractor" in the true sense of the word, you must be incorporated. I have been working this way for many years now, and would HIGHLY recommend you incorporate as a Limited Company, this serves as a layer of protection from liability and how it could affect you, the person, in the event of a lawsuit. It is more expensive this way, but not much.

Once you incorporate there are several things that must happen:

You become an employee of your company. You must set up business accounts (chequing and savings), you must set up GST/HST accounts, and you must bill the company you are working for accordingly. Ie. your agreed waged plus the appropriate tax (HST/GST). You must pay remittances which include UI, CPP, and tax. This can be done monthly, quarterly, and in some cases yearly.

You will need an accountant, and one that knows the rules around what you are doing.

You will need a lawyer to take care of your annual filings unless you want to do that yourself - I do not.

You MAY need to set up a WCB account, but this is not necessary as Trey suggests. They CAN run your WCB coverage through the company you are working for, and this may be preferable in some cases where; their rate is much better than the one you can get; you work in a variety of provinces or territories for more than a few days, 30 if I recall correctly (if you do you must have WCB set up in EACH province or territory which is a serious pain). I do both depending on who I am working for. The WCB in BC is very helpful at setting you up and giving you adivce, and you need to learn how you are required to pay into it. It is billed Quarterly here. But again, it is not essential you do it yourself.

Things like expenses and per diems are treated differently. Expenses if NOT reimbursed by the employer are tax deductible, ones where you bill them back are not. Per Diems ARE subject to tax... They must be billed through your company to their company, then you pay yourself the money which at that point is tax free. You the person should NOT be submitting Per Diem claims and simply cashing cheques as many do - this is one very misunderstood part of the the tax regs.

Write offs. There is MUCH confusion about write offs as well, mainly that when you spend money for business purposes you get a PORTION of that "written-off" against your income depending on what it is for - the operative word there being a "Portion." Guys will wax eloquent about all the money they are saving in write offs... ie. their new $70,000 "company" truck, dinners, and travel. You only get something like 20% of the cost of said truck as a write off, this varies depending on what you intend to write off. So spending wildly on items such as these for the write off is bad practice, you still need to spend the money in the first place. Doesn't stop many people however...

Now the important part:

If you are only working "contract" for one company year after year, and you get audited, there is a strong chance that your work will be deemed a "personal services contract," and you will be taxed as a person, not a company - which will result in a VERY large bill because of all the money you have saved . Multiple revenue streams are essential, as in a number of "employers," or different lines of work. I have both. This is where you can get a rude awakening with an audit, as Trey mentioned.

Learn how this all works before you jump in. Talk to accountants and a lawyer. Learn how to pay yourself correctly. Learn what happens to your money once you earn it, and how to get it. Learn to get ALL terms of employment in WRITING. Make sure you ARE listed on your employers insurance.

As Trey says, true contract work can be very rewarding in terms of wages, time commitments and life style, and scope of employers. You can see a broad cross-section of the industry and have much more control over how you work. Just make sure you stay well ahead of the paperwork. Make sure the people you work for understand how this all works, as many/most of them don't understand it either - you are NOT a regular employee.

Hope that helps.

[oldncold]

in ccra terms the 4 things that determine if you are employee

1)does the employer provide the equipment to which you earn your income /yes then you are an employee/ no then you are a contractor

2)does the business you contract for set the terms and hours control the employment. ie you must were uniform /yes you are an employee / no you are a contractor

3) how many contract do you do in a year must be 2 or more or you are an employee

4)Does the potential contractee pressuring you doing this strictly to avoid paying benefits as would they would a normal employee if yes then you are an employee



stl is very correct re lawyer and cga and all his items ps they teach this stuff in hr mgt to avoid conflicts of interest with ccra