Few tax questions surface as often in a Canada Revenue Agency (CRA) audit as a deceptively simple one: was a worker an employee or an independent contractor? The answer drives source deductions, Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and a payer's exposure to assessments for amounts it never withheld. In Insurance Institute of Ontario v. M.N.R., 2020 TCC 69, the Tax Court of Canada worked through the now-standard two-step framework for that question and concluded that a part-time course instructor was an independent contractor — not an employee — even though several of the traditional factors pointed the other way. The decision is a useful, practical illustration of how courts weigh the intention of the parties against the objective reality of the working relationship, and why both halves matter.
The facts
The Insurance Institute of Ontario delivers courses that prepare insurance agents and brokers for their professional licensing and designation requirements. Peter Barlow worked full-time in insurance sales during the day. In the evenings, he taught part-time courses for the Institute, helping candidates prepare for their exams.
His engagement with the Institute was documented by a series of written agreements that expressly described him as an independent contractor. The Institute set the curriculum and paid him a per-course fee rather than a salary or an hourly wage. Mr. Barlow had discretion over whether to teach in a given semester at all, and the Institute did not closely monitor or supervise how he ran his classes.
The dispute reached the Tax Court because the Minister of National Revenue had issued a ruling that Mr. Barlow was engaged in pensionable employment under the CPP and insurable employment under the EI legislation — in other words, that he was an employee, with the withholding and contribution obligations that classification entails. The Institute disagreed and appealed that ruling to the Tax Court.
The issue
The core issue was the recurring one in this area of law: on the whole of the relationship, was Mr. Barlow performing his services as a person in business on his own account (an independent contractor), or was he engaged under a contract of service (an employee)?
Canadian courts answer that question using a settled body of authority. The four classic factors come from Wiebe Door Services Ltd. v. M.N.R., [1986] 3 F.C. 553 (C.A.): the degree of control the payer exercises, the ownership of tools, the worker's chance of profit, and the worker's risk of loss. The Supreme Court of Canada endorsed and refined this approach in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59, framing the central question as whether the worker is in business on their own account and treating the factors as aids rather than a rigid checklist.
The Federal Court of Appeal then structured the analysis into two steps in 1392644 Ontario Inc. (Connor Homes) v. Canada (National Revenue), 2013 FCA 85. Under Connor Homes, a court first determines the subjective intention of each party — what relationship did they actually intend, as shown by the written contract and their conduct? The court then asks, at the second step, whether the objective reality of the relationship is consistent with that intention, applying the Wiebe Door factors to the facts.
What the Court decided (and why)
Justice David E. Graham, writing for the Tax Court, allowed the Institute's appeal and held that Mr. Barlow was an independent contractor. The reasoning is what makes the decision worth studying.
Step one — common intention. The written agreements described Mr. Barlow as an independent contractor, and the Court found that this reflected the genuine, shared understanding of both parties. There was a common intention that the relationship be one of independent contract.
Step two — objective reality. Here the analysis became more nuanced, because the Wiebe Door factors did not all line up neatly behind that intention:
- Control: The Institute set the curriculum candidates had to be taught, which pulls toward employment. But Mr. Barlow decided whether to teach in a given semester and was not closely supervised in how he taught, which pulls the other way. The Court treated control as, on balance, equivocal.
- Tools: Neither side owned significant tools that decisively tipped the balance, so this factor was largely neutral.
- Chance of profit and risk of loss: Mr. Barlow was paid a set fee per course, with limited opportunity to increase his profit or suffer a genuine business loss — features that, on their face, look like employment.
On a strict reading, several factors suggested employment. The pivotal part of Justice Graham's reasoning addressed a logical tension built into the Connor Homes test: if the parties' intention (step one) had no effect whatsoever on the outcome once the objective factors (step two) were applied, then the first step would be pointless. To give the first step real meaning, the Court reasoned that where the parties genuinely share a common intention, the objective evidence does not have to satisfy every hallmark of an independent-contractor relationship. Instead, it is enough that the parties conducted themselves in a manner that is broadly consistent with — or similar to — what one would expect from the relationship they intended. The intention will not save a relationship where the facts are flatly inconsistent with it, but it can carry weight where the facts are merely mixed.
Applying that approach, the Court found that the working relationship was sufficiently consistent with an independent-contractor arrangement — Mr. Barlow's freedom to decline to teach, the absence of close supervision, and the per-course fee structure paid only at the end of each course all fit the parties' shared intention. The appeal was allowed and the Minister's ruling was set aside.
Why this decision matters / practical takeaways
For payers and workers wrestling with classification — and for anyone facing a CRA payroll or CPP/EI ruling — Insurance Institute of Ontario offers several practical lessons.
- A label in a contract is a starting point, not the finish line. Writing "independent contractor" into an agreement establishes intention, which is the first step. But it does not end the inquiry. The CRA and the courts will still test that label against how the relationship actually operated.
- Common intention can tip a genuinely close case. Where the Wiebe Door factors are mixed rather than one-sided, a real and shared intention — supported by conduct consistent with it — can be decisive. This case shows the intention step doing meaningful work, not merely decorating the analysis.
- Conduct has to match the paperwork. The strongest position is one where the day-to-day reality aligns with the written terms: control left with the worker, freedom to accept or decline engagements, fee-based payment, and the worker carrying some genuine business risk. Where conduct contradicts the contract, the contract will not rescue the arrangement.
- The stakes are concrete. A reclassification from contractor to employee can leave a payer assessed for unremitted source deductions, CPP, and EI — often with interest — and can expose directors to personal liability for those amounts. For more on that exposure, see our overview of directors' liability files and our guide to directors' liability for source deductions and GST/HST.
- Burden and evidence count. Classification appeals turn on the facts the parties can actually prove — contracts, invoices, the way work was assigned and paid, and the latitude the worker truly had. Our note on evidence and the burden of proof in the Tax Court explains why building that record early matters. For a fuller primer on the test itself, see our explainer on employee versus independent contractor.
How Barrett Tax Law approaches employee vs. independent contractor files
Worker-classification disputes usually begin in one of two places: a CRA payroll or trust-examination audit of a business, or a CPP/EI ruling requested by (or about) an individual worker. In either situation, our process starts with the documents and the conduct — the contracts, the invoicing and payment pattern, the degree of control and supervision, who supplied the tools, and whether the worker carried real business risk. We map those facts onto the audit stage where the relationship is first characterized, because that is often where a file is won or lost.
Where a ruling or assessment has already been issued, we assess the strength of an objection and, if warranted, an appeal to the Tax Court of Canada, applying the Connor Homes two-step framework to the specific record. You can read more about that route in our guide to the Tax Court appeal process. Where the better path is to correct past non-compliance before the CRA acts, we consider whether a voluntary disclosure fits the facts. If you are facing a classification question or a CPP/EI ruling, you are welcome to reach out for a free, no-obligation consultation to talk through your options.
This article is commentary on a public court decision and is provided as general information only. It is not legal advice, no solicitor-client relationship is created by reading it, and outcomes in classification disputes depend heavily on the specific facts. The full decision, Insurance Institute of Ontario v. M.N.R., 2020 TCC 69, is available on CanLII.
Frequently asked questions
What test do Canadian courts use to decide if a worker is an employee or an independent contractor?
Courts apply a two-step framework set out by the Federal Court of Appeal in 1392644 Ontario Inc. (Connor Homes) v. Canada, 2013 FCA 85. First, the court identifies the subjective intention of the parties as shown by their contract and conduct. Second, it tests whether the objective reality matches that intention using the factors from Wiebe Door Services Ltd. v. M.N.R. and 671122 Ontario Ltd. v. Sagaz Industries Canada Inc., 2001 SCC 59: control, ownership of tools, chance of profit, and risk of loss. The overarching question is whether the worker is in business on their own account.
What did the Tax Court decide in Insurance Institute of Ontario v. M.N.R., 2020 TCC 69?
The Tax Court allowed the payer's appeal and held that the worker, a part-time insurance-course instructor, was an independent contractor rather than an employee for CPP and EI purposes. Even though some of the traditional factors pointed toward employment, the parties shared a genuine common intention to create an independent-contractor relationship, and their conduct was broadly consistent with that intention.
Does writing 'independent contractor' into a contract make someone a contractor?
No. A written label establishes the parties' intention, which is only the first step of the analysis. The CRA and the courts will still examine how the relationship actually operated — control, supervision, payment structure, freedom to accept or decline work, and whether the worker carried real business risk. If the day-to-day conduct contradicts the label, the label will not control the outcome.
Why does employee versus independent contractor classification matter for tax?
Classification determines who must withhold and remit source deductions, CPP contributions, and EI premiums. If the CRA reclassifies a contractor as an employee, the payer can be assessed for amounts it never withheld, often with interest, and directors may face personal liability for unremitted source deductions. The worker's own access to EI and CPP benefits and the deductibility of expenses can also change.
How much weight does the parties' intention carry in these disputes?
Intention will not save a relationship where the objective facts are flatly inconsistent with it. But where the Wiebe Door factors are mixed rather than one-sided, a genuine, shared intention supported by consistent conduct can tip a close case. In Insurance Institute of Ontario, the court emphasized that the intention step must have real effect, so it required only that the relationship be broadly similar to what the parties intended, not that every contractor hallmark be satisfied.
What should a business do if the CRA challenges how it classified its workers?
Gather and preserve the documentation that defines the relationship — written agreements, invoices, records showing how work was assigned and paid, and evidence of the worker's autonomy. These disputes usually start at the audit or CPP/EI ruling stage, which is often where they are decided, so it helps to address them early and, where appropriate, with representation. If a ruling or assessment is issued, an objection and an appeal to the Tax Court of Canada may be available, applying the Connor Homes framework to the specific facts.