Save on Taxes by Hiring VAs as Subcontractors in Canada 2024-A Detailed Guide

The global virtual assistant services market is booming. Businesses need more assistants to manage their operations and processes as they grow. You would be shocked to know that the number of virtual assistants worldwide was estimated at 3.9 million in 2020 and is expected to reach 8.4 million by 2028.

As a business owner, hiring a virtual assistant to manage your business from anywhere in the world at a low cost is the best thing you can have. But, hiring your VA as an employee can turn these profits into losses because of the heavy employee taxes in Canada.

However, small to medium-sized businesses in Canada can significantly reduce employee-related taxes by hiring VAs as Subcontractors rather than Employees.

This blog will provide comprehensive tips and strategies on how to save on taxes by hiring VAs as subcontractors in Canada. Let's get straight into it.

Who are Virtual Assistants?

Virtual Assistants are the professionals who work for you or your business to help you simplify processes and tasks so that you can focus on core activities. 

A Virtual Assistant is like a team member who virtually manages and performs tasks from anywhere in the world.  Your Virtual Assistant plays an important role in moving your business forward by keeping everything organized and up-to-date.

According to Grand View Research, the global virtual assistant services market was valued at USD 4.12 billion in 2020 and is expected to have a massive compound annual growth rate (CAGR) of 24.4% from 2021 to 2028. 

Businesses recognize their importance, which has resulted in a high demand for virtual assistants worldwide. Therefore, the virtual assistant services industry will continue to expand in the coming years.

This simply means your business will also need more resources, so why shouldn't you know everything about saving on taxes for onboarding more assistants to your team?

Employee vs Subcontractor: Key Differences 

You need to understand the difference between an employee and a subcontractor, as it directly impacts your financial obligations. 

Hiring a virtual assistant as an employee is one of the biggest mistakes that cost you hundreds of dollars each month as an employee tax. 

This has nothing to do with your business because your virtual assistant is not a regular employee; he or she works from home anywhere in the world. And you shouldn't be paying taxes for them when they are not present in an office-based environment in your country.

Who are the employees then?

Employees are individuals who work under your direction, typically on a long-term basis. As an employer, you are responsible for 

• Handling payroll taxes
• Providing benefits like health insurance and paid leave
• Managing various administrative tasks within the company or business

Therefore, hiring a VA as an employee can significantly increase your business expenses. 

On the other hand, subcontractors work independently. They manage their taxes, set their schedules, and generally provide services on a contract basis. This arrangement offers you greater flexibility and can reduce your tax burden, as you won't need to pay for 

• Employee benefits like health insurance and paid leave
• Canada Pension Plan (CPP)
• Employment Insurance (EI)

However, it's important to correctly classify workers according to CRA guidelines to avoid penalties and ensure compliance with Canadian tax laws.

Read More: U.S. citizens and resident aliens federal income tax withholding

Tax Benefits of Hiring VAs as Subcontractors

Hiring Virtual Assistants as subcontractors offers significant tax benefits for businesses in Canada. One of the primary advantages is tax deductions. You can claim subcontractor payments as business expenses, directly reducing your taxable income. 

Additionally, by showing VAs as subcontractors, you can avoid payroll taxes such as contributions to the Canada Pension Plan (CPP) and Employment Insurance (EI), which are required for regular or traditional employees.

Read more about CPP Contribution Rates, Maximums, and Exemptions.

When working with subcontractors, it's also important to consider GST/HST obligations as well. Typically, subcontractors are responsible for managing their own GST/HST, but you must ensure that they are properly registered and that you account for any applicable taxes in your payments. 

Read more about General Information for GST/HST Registrants in Canada

Understanding these tax benefits can help you reduce your business expenses while complying with Canadian tax laws. 

How to Properly Hire VAs as Subcontractors

You must be very careful with the documentation while hiring a VA as a subcontractor. Draft a detailed contract that outlines the scope of work, payment terms, and independence of the subcontractor, reinforcing that they are not employees. 

Proper documentation is key to maintaining accurate records of all payments, contracts, and relevant communications, as well as filing necessary forms like T4A slips where applicable. Read more about what are T4A slips, when to issue them, and how to fill them.

Does it feel overwhelming? If it seems complicated to you, don't do it yourself. In such a case, make a smart move and consult with professionals, such as accountants or tax advisors, to ensure you meet all CRA regulations and avoid potential pitfalls. 

These experts can help you resolve the complexities of subcontractor arrangements and ensure that your business remains compliant with tax laws.

Potential Risks and Mitigation Strategies

While hiring VAs as subcontractors offers many benefits, there's a risk of reclassification by the CRA.  This could lead to penalties if the subcontractor is deemed an employee. That's not all. 

According to the Canada Revenue Agency, a person convicted of tax fraud will be imprisoned for 14 years and face foreign travel restrictions.

Read more about Tax evasion, and understanding the consequences.

However, you can avoid penalties by maintaining a clear distinction between subcontractors and employees. Remember that subcontractors have control over how and when they complete their work and do not receive employee-like benefits. 

Regularly review and update contracts to reflect the independent nature of the relationship and adhere to best practices to minimize the risk of reclassification.

Conclusion

Hiring Virtual Assistants as subcontractors in Canada offers a strategic advantage for reducing taxes and enhancing business efficiency. By understanding the key differences between employees and subcontractors, you can make informed decisions that help lower your financial burden.

You can focus on scaling and growing your business by properly classifying and managing subcontractors to avoid unnecessary payroll taxes and administrative costs.