Q1. One of your friends, Coach Ron from your days as a coach with the Lasalle Stompers operates a business called Plumbing Done Fine (PDF) has approached you, a local Tax Accountant for some advice. Ron recently had lunch with John Wick, owner of the local property restoration company Disaster Recovery Services (DRS) which responds to various natural disasters for both home and commercial building owners. John explained to Ron that all of his workers are considered independent contractors (IC's) and not employees and as a result John is saving a large amount of money by not having to pay CPP, EI, EHT to CRA or vacation pay to these workers. These workers perform tasks similar to the workers of PDF, including plumbing and electrical work when needed. Ron has come to you, seeking your advice as to whether his workers should be considered employees or IC's like John's workers at DRS. He has provided you with the following information and would like your opinion as to the status of these workers. Clearly, if they are IC's then PDF could potentially save some costs, but Ron is concerned that CRA will audit PDF and determine that the workers are employees and not IC's if he were to treat the workers as IC's. The his CPP/El remittances would drop to less than half of what they are now along with the income tax withheld, causes Ron to feel an audit would be imminent if he were to cease sending these monies into CRA. Ron pays his workers for the completed job, not an hourly rate. For example, a worker installing a toilet would be paid $100 while a dishwasher installation would be $150 and a hot water tank installation results in the worker being paid $300. These are a sample of the jobs and fees paid to the workers on a weekly basis by PDF. Some of the jobs are high priority jobs such as water leaks and lack of use of a toilet are concerns for the customers. Ron uses a rotational type system for assigning/requesting the services from the workers. The workers are ranked by seniority with PDF. His longest serving plumber is Joe, also known as "plumber Joe". Joe is called upon first and if he is busy with other jobs or not available for some reason, Ron goes with the next longest serving plumber on his list. All workers have completed their plumbing apprenticeship and are provincially licensed by the Ontario College of Trades. The PDF workers must where a PDF uniform and present their PDF issued identification card before starting any work. Customers pay PDF directly and are left with an invoice by the worker at the completion of the work. The rates for the services charged to the customer are set by PDF and if there is a fair bit of travel for an out of town call, there is an additional charge billed to the customer. PDF pays its workers a per kilometre rate of 40 cents per km for all calls. The monthly vehicle log is submitted to PDF's Accounts Payable area which pays the mileage through accounts payable. The workers are required to provide their own truck to attend the service calls, which must be a 2015 or newer vehicle in road worthy condition. PDF provides a magnetic door decal that has the PDF logo and phone number of the PDF office which must appear on both the driver and passenger side door of the truck when the worker is completing service calls for PDF. Workers also must purchase and provide their own tools, but they are able to purchase these at a reduced rate as PDF purchases them in bulk from the local Snap On/Snap Off distributor. The workers usually only report to the PDF office/warehouse in the morning to pick up parts for the day, they are not required to return to PDF at the end of the day. Some workers do the opposite, arriving late in the day to pick up parts for the following day. The workers are required to carry their own liability insurance of $1 Million coverage, for instances such as where they may damage a customer's property or cause damage to utility or gas lines in the course of completing their services. PDF provides its commercial and residential customers with a 12 month warranty for all services provided. Should there be a warranty claim filed by a customer within the 12 month period, the worker must complete the repair free of charge. If materials are required, the cost of the materials is shared equally by PDF and the worker. Required: As the Tax Accountant, prepare an appropriate response for Ron and a conclusion supported by your analysis of the above circumstances. 12 Marks Q1. One of your friends, Coach Ron from your days as a coach with the Lasalle Stompers operates a business called Plumbing Done Fine (PDF) has approached you, a local Tax Accountant for some advice. Ron recently had lunch with John Wick, owner of the local property restoration company Disaster Recovery Services (DRS) which responds to various natural disasters for both home and commercial building owners. John explained to Ron that all of his workers are considered independent contractors (IC's) and not employees and as a result John is saving a large amount of money by not having to pay CPP, EI, EHT to CRA or vacation pay to these workers. These workers perform tasks similar to the workers of PDF, including plumbing and electrical work when needed. Ron has come to you, seeking your advice as to whether his workers should be considered employees or IC's like John's workers at DRS. He has provided you with the following information and would like your opinion as to the status of these workers. Clearly, if they are IC's then PDF could potentially save some costs, but Ron is concerned that CRA will audit PDF and determine that the workers are employees and not IC's if he were to treat the workers as IC's. The his CPP/El remittances would drop to less than half of what they are now along with the income tax withheld, causes Ron to feel an audit would be imminent if he were to cease sending these monies into CRA. Ron pays his workers for the completed job, not an hourly rate. For example, a worker installing a toilet would be paid $100 while a dishwasher installation would be $150 and a hot water tank installation results in the worker being paid $300. These are a sample of the jobs and fees paid to the workers on a weekly basis by PDF. Some of the jobs are high priority jobs such as water leaks and lack of use of a toilet are concerns for the customers. Ron uses a rotational type system for assigning/requesting the services from the workers. The workers are ranked by seniority with PDF. His longest serving plumber is Joe, also known as "plumber Joe". Joe is called upon first and if he is busy with other jobs or not available for some reason, Ron goes with the next longest serving plumber on his list. All workers have completed their plumbing apprenticeship and are provincially licensed by the Ontario College of Trades. The PDF workers must where a PDF uniform and present their PDF issued identification card before starting any work. Customers pay PDF directly and are left with an invoice by the worker at the completion of the work. The rates for the services charged to the customer are set by PDF and if there is a fair bit of travel for an out of town call, there is an additional charge billed to the customer. PDF pays its workers a per kilometre rate of 40 cents per km for all calls. The monthly vehicle log is submitted to PDF's Accounts Payable area which pays the mileage through accounts payable. The workers are required to provide their own truck to attend the service calls, which must be a 2015 or newer vehicle in road worthy condition. PDF provides a magnetic door decal that has the PDF logo and phone number of the PDF office which must appear on both the driver and passenger side door of the truck when the worker is completing service calls for PDF. Workers also must purchase and provide their own tools, but they are able to purchase these at a reduced rate as PDF purchases them in bulk from the local Snap On/Snap Off distributor. The workers usually only report to the PDF office/warehouse in the morning to pick up parts for the day, they are not required to return to PDF at the end of the day. Some workers do the opposite, arriving late in the day to pick up parts for the following day. The workers are required to carry their own liability insurance of $1 Million coverage, for instances such as where they may damage a customer's property or cause damage to utility or gas lines in the course of completing their services. PDF provides its commercial and residential customers with a 12 month warranty for all services provided. Should there be a warranty claim filed by a customer within the 12 month period, the worker must complete the repair free of charge. If materials are required, the cost of the materials is shared equally by PDF and the worker. Required: As the Tax Accountant, prepare an appropriate response for Ron and a conclusion supported by your analysis of the above circumstances. 12 Marks