- Hiring a person or Independent Contractor to perform a service?
- Paying an Honorarium to an individual?
Identifying the purpose of the payment is key in establishing what type of information is required when the payment is being made.
- What kind of relationship is there between the University and the individual?
- Should this payment be made through Accounts Payable or Payroll Services?
Many factors come into play when paying a person or Independent Contractor, and knowing some essential guidelines may assist in conducting business in compliance with University polices and procedures, and with Canadian Revenue Agency regulations. Being aware of specific policies and processes before hiring an Independent Contractor will reduce the possibility of delays in payment or possible redirection of payment to Payroll Services.
- When is a payment an Honorarium?
What is an honorarium?
The term “honorarium” is not well defined by the Canada Revenue Agency (CRA). From a CRA perspective, payments for services made to an individual are either employment income or business income. The CRA does however support the notion of small payments that are not subject to the usual tax rules. The criteria for these payments include:
- They are nominal and are not reflective of the value of the work done;
- They are made to an individual for voluntary services for which fees are not legally or traditionally required;
- They are made on a one-time or non-routine basis to an individual as a “thank you”.
When is an honorarium appropriate?
Keeping the above criteria in mind, examples where an honorarium payment would be acceptable include:
- payment, as a “thank you” or gesture of goodwill and appreciation, to a non-professional;
- guest speaker or lecturer,
- external party for a special classroom lecture or short series of such lectures,
- individual for conducting a seminar or workshop,
- guest speaker at an educational event or other similar function,
- guest speaker participating at outreach events,
- payment to a volunteer for assistance for set-up or supporting activities at special events;
- payment to an external examiner whose services are engaged on a one-time or very infrequent basis.
When is a payment not an honorarium?
An honorarium is not based on an agreed to amount between the individual providing services and the University representative seeking services. If payment is agreed upon, this constitutes a contractual arrangement. This means that an employment or independent contractor (business) relationship exists.
An honorarium is not appropriate if the University is obtaining the services of a professional speaker or consultant who performs the requested service for a living. These individuals would be considered self-employed and should receive a fee for service or consulting payment.
Are honorariums subject to tax deductions?
Residents of Canada: An honorarium paid to a resident of Canada who is not an employee of the University is not subject to tax deductions; however, this does not mean that the recipient does not have to pay taxes on the amount received. The individual will be issued a T4A for the payment, and when they file their tax return for the year, any taxes owing on the amount paid will be assessed by the CRA.
Non-Residents of Canada: Where the service was performed in Canada, honorariums paid to non-residents of Canada are subject to a flat rate income tax deduction and are reported on a T4A-NR. If the service was performed outside of Canada, there is no tax deduction or reporting requirements.
- How do I pay a Small Business or Individual for Service?
The following are required in order to pay a small business or individual:
- Independent Contractor Questionnaire (found in eShop)
- Confirmation of Information and Indemnification Agreement (found under ‘Expenditure and Reimbursement Forms’ on the forms page)
- Full legal name
- Mailing Address
- Social Insurance Number or Registered Tax Identification Number (GST/HST/Business Number)
- An invoice
- Cheque Requisition Form
It is recommended that documentation be forwarded prior to the request for payment. Documentation may be requested again if a significant period of time has elapsed since previous payments, or if the individual/Independent Contractor is being paid by a different department. If you believe that a contractor has been paid before, please send a query to Accounts Payable and verification will be provided.
In the case of a taxable payment (where a Social Insurance Number has been provided), a T4A will be issued after the completion of the calendar year.
- Want to know more about payments to Small Businesses and Individuals?
Whether a business is providing editing services, selling gift baskets, or an individual is playing at convocation, a commitment has been made by the University to pay for this service/product, and the Independent Contractor has committed to perform or fulfill a contract. Before this contract is finalized, whether verbal or written, it is prudent to examine how the contractor should be paid and whether a pre-existing relationship with the University exists.
Completing the Independent Contractor Questionnaire (this form is found in eShop) prior to finalizing a contract will determine whether the payment should be made through Accounts Payable or Payroll Services. If payment is to be made through Accounts Payable, then completion of the Confirmation of Information and Indemnification Form (found under ‘Expenditure and Reimbursement Forms’ on the forms page) will ensure that the Independent Contractor is aware that they are responsible for their tax obligations to the Canadian Government and indemnifies Carleton University from any claim, damages or liabilities resulting from their retention as an Independent Contractor. Both forms should be forwarded to Research Accounting (if the requisition is being paid from an internal or external research fund) or to the Accounts Payable Supervisor for all other funds.
Further information regarding the individuals/Independent Contractor relationship may be obtained from the CRA Website Employee or Self-Employed.
- How do I pay a Non-Resident?
For Non-Residents of Canada specific rules apply. Withholding taxes will be deducted as required by the Canadian Revenue Agency. This is specific for work performed within Canada. For more information, contact the Accounts Payable Supervisor directly.
For Non-Canadian Residents, a T4A-NR slip will be issued for taxable payments.
- How does a visiting individual apply to be exempt from withholding taxes?
Individuals from outside of Canada may be directed to the Waiver 105 (Tax Exemption certificate) form to apply to be waived from the withholding taxes. Work performed outside of Canada will not be subject to withholding taxes, but if a product is being provided to a Canadian address, taxes may be assessed.
30 days prior to the anticipated arrival in Canada, individuals should send the following documents in completion to the Canada Revenue Agency at 333 Laurier Street, Ottawa, ON, K4A 4P4 (phone: +613-688-7440):
- Copy of letter of agreement/contract with University department
- Copy of Passport Identification page (notarized)
- Form T1261
- Regulation 105 Waiver Application
Based upon an approved application, the Canadian Revenue Agency will prepare a Tax Exemption Certificate. The certificate will be sent to both the individual, and the departmental administrator as indicated on the application. This certificate must accompany all requisitions for payment (in copy form) submitted to Accounts Payable to prevent withholding tax from being deducted.