Contesting an $820,000 Worker Status Reassessment in Toronto

The situation

Parisa and Niloufar had co-owned a mid-sized construction company in Toronto for more than two decades before selling it and retiring. The company built its crews the way much of the trade does: a small core of employees on the payroll, and a rotating roster of subcontractors — framers, electricians, drywallers, a long-serving foreman — who invoiced the company for their work on individual jobs. That structure had never drawn scrutiny while the business was operating.

About eighteen months after the sale closed, Parisa opened a letter from the Canada Revenue Agency notifying her that the company's payroll practices for four prior years were under audit. The auditor's working theory, laid out in a proposal letter that followed several months later, was that a number of the people the company had treated and paid as independent subcontractors were, in substance, employees. If that view held, the company would owe the employer's share of Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums going back through the audited years, plus interest — and in some circumstances the employee's share as well, since the workers had never had it withheld. The auditor's preliminary figure put the total exposure at roughly $820,000, spread across dozens of individual reclassifications.

Because the sale of the business had closed on the basis that its tax affairs were in order, Parisa and Niloufar were personally exposed to a bill they had not budgeted for in retirement. They came to Treadstone Law with the CRA's proposal letter and a folder of subcontractor invoices going back six years, unsure whether to fight the reassessment or simply pay it.

What the audit found

CRA does not simply take a payer's word for how a working relationship is structured. Whether someone is an employee or an independent contractor is a question of fact, decided by looking at the substance of the relationship rather than the label on an invoice or a contract. The tests CRA and the courts apply generally weigh four things: who controls how, when and where the work is done; who owns the tools and equipment used; whether the worker has a genuine chance to profit or risk of loss on the job, as a business would; and how integrated the worker is into the payer's operation.

The auditor's file leaned hardest on one worker in particular: Mateo, a foreman who had worked almost exclusively for the company for eleven years, using tools the company supplied, following a schedule the company set, and invoicing at a flat weekly rate that looked, on paper, indistinguishable from a salary. Several other long-tenured subcontractors shared some of those features. The auditor had extended the same reasoning across the full roster — including project-based tradespeople who owned their own equipment, carried their own insurance, set their own quotes, and worked for several other builders in the same years — treating the whole group as a single category.

That blanket treatment was the company's strongest ground for a challenge. Worker status has to be assessed person by person and, in principle, year by year, because the same company can properly have both employees and genuine subcontractors on the same job site. The auditor's proposal had not done that work; it had applied the facts of the clearest case, Mateo's, to workers whose arrangements looked nothing alike.

What we did

1. Requested a formal CPP/EI ruling rather than accepting the audit proposal. Payers and workers can ask CRA for a binding ruling on a worker's status, which is decided by a different unit than the audit team and creates a clear, appealable determination for each individual rather than a single blended assessment. This reset the process onto a footing where every worker's facts had to be examined on their own.
2. Built a separate evidentiary file for every disputed worker. For each of the more than thirty subcontractors caught by the proposal, we assembled the contract or purchase order, invoices showing rates and payment terms, evidence of tools and equipment ownership, insurance certificates where they existed, and records of work performed for other builders in the same period. Workers who could show meaningful business risk and independence from the company were grouped separately from those, like Mateo, whose arrangements were harder to distinguish from employment.
3. Conceded the weak cases early. Rather than defending every worker as a contractor regardless of the facts, we accepted that Mateo's arrangement had genuine hallmarks of employment — set schedule, company-supplied tools, no real chance of profit or loss — and one other long-term foreman in a similar position. Conceding those two narrowed the dispute and preserved credibility for the stronger arguments on the remaining workers.
4. Pressed the ruling officer on the project-based tradespeople. For subcontractors who owned their own tools, quoted their own jobs, and worked for multiple builders, we argued — and documented — that the control and integration factors pointed clearly away from employment, regardless of how long any individual relationship had run.
5. Filed a formal objection to the pieces of the initial ruling that still treated ambiguous cases as employment, using the Notice of Objection process available for CPP/EI rulings, and provided the additional documentation the objection review had requested.

The outcome

The ruling process, worker by worker, produced a very different result from the auditor's original blended proposal. Of the more than thirty disputed workers, CRA ultimately upheld independent contractor status for all but two: Mateo and the second long-serving foreman whose facts mirrored his. For those two, the company accepted the reassessment, which came to roughly $55,000 in retroactive CPP and EI contributions, interest included, once confined to the correct years and the correct pair of workers.

The remaining roughly $765,000 of the auditor's original $820,000 exposure did not materialize. Because the project-based subcontractors' documentation held up — separate insurance, their own tools, multiple clients, genuine pricing risk on each job — CRA's ruling officer confirmed their independent contractor status and closed the file on those individuals without further reassessment.

Parisa and Niloufar paid the $55,000 reassessment, split according to the co-ownership arrangement they had maintained through the sale, and closed the matter roughly a year after the original audit letter arrived. Because the company no longer existed as an operating entity, resolving the file mattered for another reason too: it removed a contingent liability that could otherwise have followed them personally as the company's former directors, and it let them close out the sale's post-completion tax obligations with certainty rather than an open audit hanging over their retirement. They also asked Treadstone Law to review the buyer's ongoing payroll practices as a courtesy, since several of the same subcontractors continued working under the new ownership — a reminder that the underlying classification question does not disappear when a business changes hands, only the liability for past years does.

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