Can I deduct payments I make to subcontractors in my business?

Yes, amounts paid to subcontractors for services rendered in the course of earning business income are deductible as business expenses. These would typically appear under wages or subcontractor costs on Form T2125. The payment must be for actual services, reasonable in amount, and documented.

If you pay a subcontractor $500 or more in a calendar year for construction services in Canada, you are generally required to file a T5018 information slip with the CRA reporting that payment. For non-construction subcontractors paid over $500, T4A slips may be required. Failing to file these slips can result in penalties, and the CRA has been increasingly focused on this reporting requirement.

You do not withhold income tax, CPP, or EI from legitimate subcontractors — that is their responsibility. However, if the CRA later determines the subcontractor was actually an employee, you could face liability for those amounts. Keeping contracts, invoices, and records of the services provided helps establish the nature of the arrangement.