Varga v. The King, 2026 TCC 138
Determining whether a worker is an employee or an independent contractor remains one of the most common payroll disputes between businesses and the Canada Revenue Agency.
A recent Tax Court decision provides another important example.
In Varga v. The King, 2026 TCC 138, two Ontario chiropractic practitioners challenged CRA rulings that an office assistant was engaged in pensionable and insurable employment.
The Tax Court sided with the businesses.
The CRA Ruling
CRA’s CPP/EI Rulings Division determined that the office assistant was an employee.
That classification matters because employers can become responsible for:
- Employer CPP contributions.
- Employee CPP amounts that should have been withheld.
- EI premiums.
- Employer EI premiums.
- Interest and potentially penalties.
The chiropractors appealed the ruling to the Tax Court.
What the Court Examined
The Court did not simply ask whether the worker was described as an “independent contractor.”
It examined the actual relationship.
The parties genuinely intended to establish an independent-contractor arrangement, and the Court found that they understood the consequences of that decision.
No income tax, CPP or EI was deducted from the assistant’s payments, and no T4 or Record of Employment was issued.
The Court then considered the traditional factors used to distinguish an employee from a contractor, including control, tools, financial risk and the overall reality of the relationship.
One important factor was control.
The assistant had significant discretion over when and how the necessary work was completed and had meaningful flexibility in arranging her schedule.
After considering the relationship as a whole, the Court concluded that she was an independent contractor.
Why This Matters
Calling someone a contractor in an agreement does not automatically make them one.
CRA can examine how the relationship actually operates.
However, this case also demonstrates that the parties’ genuine intention remains relevant when the objective facts are consistent with that intention.
Lessons for Businesses
Businesses using contractors should have written agreements clearly identifying the relationship.
More importantly, the day-to-day arrangement should support the contract.
Consider:
- Who controls the worker’s schedule?
- Can the worker decide how the work is performed?
- Who supplies equipment?
- Does the worker have an opportunity for profit or a risk of loss?
- Can the worker provide services to others?
- Is compensation structured like employment?
Key Takeaway
The contract matters—but the actual working relationship matters even more.
Businesses should review contractor arrangements before a CRA payroll audit occurs. Reclassification after several years can create substantial CPP, EI, interest and payroll exposure.
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