Employee or Self-employed (CPP reporting Issues)

The CRA seems to be on a bit of a witch hunt of late.  The last time I checked this was not the 1700’s and we are not in Salem Massachusetts.  What am I talking about?  I am talking about the fact that the CRA seems to think that if you “work” you have to be an employee.
There are many people who have their own corporations, and carry on business through those corporations.  The reasons for using corporations are numerous and varied depending on who you ask.  I am not going to get into that now, but I am going to deal with employees and source deductions.
The simple version is this.  If you have employees that you control, direct, pay regularly for time worked, etc., then you must make source deductions and file T-4 slips for them with the CRA.  The real issue at hand is for those that have corporations where as the owner they are solely responsible for all work performed.  The CRA is on a vendetta to try and force people with their own corporations to call themselves employees of their own corporations and make bi-weekly or monthly source deductions.
The problem is that as an owner, shareholder, director, and worker you have options on how you pay yourself.  The CRA seems to think that you should have to do it their way.  There is no legislation that says you must T-4 yourself from your own corporation and withhold and remit source deductions.  In fact this area is so grey and so lacking in specific guidelines that it is ridiculous.  As an owner you have the ability to structure your affairs as you see fit.  You have the ability to make yourself an employee, or structure things so you are not an employee, it is all a matter of doing things the proper way.
There is a four step evaluation that the Tax Court of Canada, see TCC case (Wiebe Door Services Ltd. (Applicant) v. The Minister of National Revenue (Respondent)), ruled must be applied to determine if a person is an employee.
a) The degree or absence of control, exercised by the alleged employer.  
Simply put if you have the ability to choose when you work, what you work on, how you do the work, how long you work, and you have the ability to substitute someone else to do the work for you, then you are likely not an employee.
(b) Ownership of tools.
If you supply your own tools, materials, etc. then you are likely not an employee.  If you own your own corporation the company can still own the tools or you can bill the company for their use.
(c) Chance of profit and risk of loss.
If you are not paid an hourly wage, or have the risk of loss or reward of profit then you are likely not an employee.  Employees have very little risk, as usually they are paid regardless of how well the company is doing.  Further, employees are usually paid for time put in not the results achieved while working.
As an owner / director / worker you are in the position where you cannot pay yourself a salary on a regular basis if there is no work coming in, unless you dip into a line of credit or financing.  In a situation like this those payment should not be treated as salary anyway.  The point is as an owner operator you bear all the risk, and reap all the rewards.
(d) Integration of the alleged employees' work into the alleged employer's business.
This test is a little harder, in that if you are the only worker in your business you are an integral part of the business.  If you have the ability to substitute someone else to carry out your duties then you would not be considered integral.  That said all four tests must be considered not just one or two.
A common argument I have heard from CRA staff is that you cannot contract with yourself, so you have to be an employee.  If this is true then the opposite logic should follow.  If I can’t contract with myself to be self-employed, then how can I hire myself to be an employee of my corporation?  The legislation for Employment Insurance (EI) says you can’t be employed by your own corporation or be self-employed and have EI coverage.  This is because they are afraid you would “lay off” yourself, you have that ability to control the work accepted or rejected, and collect benefits when you don’t want to work.  If you can’t have EI coverage, how can you be considered to be an employee?
The bottom line is that the CRA seems to be cherry picking when they want people to be employees of their own corporation.  I can reference three specific court cases where CRA took opposing arguments on this issue.  In the case Meredith V. Her Majesty the Queen the CRA argued that the shareholder, Mr. Meredith, could not be an employee of his own corporation.  I won’t get into all the arguments, it is an interesting read though, however my take on it is simply that the CRA did not want Mr. Meredith to be eligible for the Overseas Employment Tax Credit (OETC).  The CRA won this case and Mr. Meredith was ruled not to be an employee of his own corporation. 
In the second case David Martin, Cyril Chisholm, Diethelm von Lieres, Appellants, and The Minster Of National Revenue, Respondent, the CRA again argued that the appellants could not be employees of their own corporation.  Some very interesting arguments were made and the Judge’s comments in this case were also extremely interesting.  The short answer is that CRA did not want the shareholders to be employees of the corporation.  The CRA lost this case and the shareholders were allowed to be employees.
The third case is Anmar Management v. Her Majesty the Queen -Appeal 2009-2782 (CPP).  This decision is oral from the TCC.  The appellant contracted with the shareholder to provide services to the corporation.  CRA said that the Shareholder had to be an employee of the corporation, because he owned the company.  The shareholder successfully argued that he was not an employee and that he had chosen this structure for a reason.  The TCC Judge agreed and ruled in the appellants favor that he was in fact not an employee and that this was his intention and that he had this right.
There are two points I want to make from this.  One is that if you structure your affairs properly you can be whatever you want.  It may involve arguing with CRA but if it is to your advantage to structure your affairs one way over another you have that right.  The right to structure your affairs to minimize tax is enshrined in jurisprudence in the court case (IRC v. Duke of Westminster).  The second is that the CRA is not consistent in their application of the law.  Right now they are telling everyone that they have to be employees, yet their actions say that this is only the case if it suits them.
If you want to structure your affairs a certain way you have the right to do so, however you must make sure that you do everything correctly or the outcome will not be as you intended.  If you are in doubt get professional help.  Remember that even with proper structuring the CRA will still try to tell you that what you have done is wrong.  This just means that you will have to fight or get someone to fight for you.  Don’t be afraid.  Just be prepared.  One last comment I will make is that the CRA will never tell you what to do (they are not allowed to give tax advice or tell you how to structure your affairs) until after you have chosen a course of action, so no matter what you choose there is a risk.  Do whatever is going to allow you to legally pay the least amount of tax.  It is your right.
To link to the Taxpayer Bill of Rights on the CRA website click here.  CRA - Taxpayer Bill of Rights