The Four Tests CRA Uses: Wiebe Door and Sagaz Applied to a Contractor

The Wiebe Door test is the set of factors CRA uses to decide whether a worker is an employee or in business on their own account. Sagaz frames the central question: whose business is it? CRA weighs control, tools, chance of profit and risk of loss, and integration. For an Ontario contractor corporation, that means 11.2% or 44.5% tax.

Key takeaways

What is the Wiebe Door test, and what did Sagaz add?

Wiebe Door Services Ltd. v. M.N.R. is a Federal Court of Appeal decision. It is the source of the four factors most people use to decide whether a person is an employee or is in business for themselves:

1. Control
2. Ownership of tools
3. Chance of profit and risk of loss
4. Integration

People often call it the four-in-one test, because the factors are read together, not one at a time.

671122 Ontario Ltd. v. Sagaz Industries Canada Inc. is a Supreme Court of Canada decision. Sagaz was not a tax case, but its statement of the test is now used in tax and in CPP and EI status work. It put the central question in one line: is the person performing the services as a person in business on their own account?

Sagaz also made two points I come back to with every contractor. First, there is no single test that settles the answer. Second, the weight of each factor depends on the facts. Control is always relevant. Other factors include who provides the equipment, whether the worker hires helpers, how much financial risk the worker takes, how much the worker invests and manages, and whether the worker can profit from doing the work well.

CRA’s guide RC4110 “Employee or Self-Employed?” sets out how CRA applies these factors. CRA also asks what the parties intended when they set up the relationship, then checks whether the day-to-day facts support that intention. A contract that calls you an independent contractor helps only if the facts match it.

Why do these tests matter for an incorporated contractor?

Most IT and finance contractors in Ontario do not work in their own name. They bill through their own corporation. That is where the personal services business (PSB) rules in section 125(7) of the Income Tax Act come in.

A corporation carries on a PSB when two things are true:

• The person who does the work (the “incorporated employee”), or a person related to them, is a specified shareholder. That means owning 10% or more of any class of shares, directly or indirectly.
• That person would reasonably be regarded as an officer or employee of the client if the corporation did not exist.

The second part is the Wiebe Door question, asked as if the corporation were not there. If the answer is “employee”, the corporation is a PSB unless an exception applies. There are two. One is employing more than five full-time employees in the business throughout the year, which means at least six. The other is earning the income from a corporation associated with yours.

When you work through a staffing agency, CRA looks at whether you would reasonably be an employee of the party you really provide the services to. The agency contract and the end client’s onboarding rules both matter.

The tax difference is large. A corporation that is not a PSB pays 11.2% combined Ontario tax on its first $500,000 of active business income earned from July 1, 2026. Income earned before that date was taxed at 12.2%, and a December 31, 2026 year-end gets a blended 11.70%. A PSB pays 44.5%. It loses the small business deduction and the 13% federal general rate reduction, and it pays an additional 5% federal tax under section 123.5. Section 18(1)(p) also denies most of its expenses.

If you are new to these rules, please start with our post on what is a personal services business. For the full cost picture, see our page on personal services business risk.

Who is our hypothetical contractor?

Hypothetical example. The engineer below is not a client. The facts below are invented to show how the tests work.

Take a data engineer who owns 100% of the shares of an Ontario corporation and has no employees. The corporation signs a contract with a staffing agency, and the agency places the engineer with a large bank. The facts for the year:

• The corporation bills $95 an hour for 37.5 hours a week over 48 weeks: $171,000.
• The bank’s manager approves the engineer’s timesheet every week.
• The engineer uses a bank laptop, the bank’s VPN, a bank email address and a bank access badge.
• The bank’s scrum master runs the daily standup and the two-week sprints. Work comes to the engineer as tickets in the bank’s system.
• The engineer is on the bank’s on-call rotation, set by the bank’s team lead.
• The engineer’s corporation pays for its own laptop, a cloud account and a certification course.
• The corporation has no other clients this year.

Now let me apply each test.

Step 1: Who controls the work?

Control asks who decides what work gets done, when, where and how. The question is who has the right to control, not only whether the client uses that right. Skilled IT people often choose the technical approach themselves. That does not settle the question if the client can still direct their time and tasks.

For the engineer, the employee-like facts are strong. The bank sets the hours and approves the timesheet. The bank’s scrum master runs the ceremonies. Tickets decide what the engineer works on next. The on-call rotation is set by the bank.

The business-like facts are thinner. The engineer designs the data pipelines without being told how. The bank checks that the pipelines work, not how the code is written.

On these facts, control points toward employment. Fixed hours alone never decide PSB status, though. The way a contract is worded can add to or ease these indicators, which is why we wrote about the contract clauses that raise PSB risk.

Step 2: Who owns the tools?

This test asks who supplies and pays for what the work needs. A worker who invests in the main tools of the job looks more like a business. A worker who uses only what the client hands out looks more like staff.

In IT, banks and insurers often require their own laptop and VPN for security reasons. So we ask a further question: does that rule apply to every vendor, including large consulting firms? If it does, the client laptop says less about the engineer and more about the bank’s security policy.

For the engineer, the bank supplies the laptop, the VPN and the software licences used on the job. The engineer’s own laptop and cloud account are used for training and testing ideas, not for bank work. The tools test points toward employment, though less strongly than control.

Step 3: Does the engineer have a chance of profit and a risk of loss?

This test asks whether the worker’s own decisions can raise or lower what they earn, and whether they can lose money. A wage has no downside. A business does.

Here is a worked example. It compares the engineer’s real contract (hourly) with a version where the corporation agrees a fixed price for the same deliverable. The deliverable is a data pipeline the bank expects to take 600 hours.

Version A: hourly contract (the engineer’s real contract)

• On plan, 600 hours: 600 x $95 = $57,000.
• Finished early, 500 hours: 500 x $95 = $47,500.
• Overrun, 750 hours: 750 x $95 = $71,250. The extra 150 hours earn 150 x $95 = $14,250.

The bank carries the cost of the overrun. The engineer’s corporation cannot lose money on the work, and finishing early only means billing less.

Version B: fixed-price deliverable

The corporation quotes $57,000 to build and deliver the same pipeline. It pays $3,000 for its own cloud test environment, so it keeps $54,000 whatever the hours.

• On plan, 600 hours: $54,000 / 600 = $90 per hour.
• Finished early, 500 hours: $54,000 / 500 = $108 per hour. That is $6,500 more than hourly billing for the same 500 hours ($54,000 – $47,500).
• Overrun, 750 hours: $54,000 / 750 = $72 per hour. That is $17,250 less than hourly billing for the same 750 hours ($71,250 – $54,000).

Version B has a real chance of profit: finishing early lifts the return to $108 an hour, against $90 on plan. It also has a real risk of loss: an overrun drops the return to $72 an hour, and the corporation absorbs 150 hours it cannot bill.

The engineer’s real contract is Version A, so this test points toward employment.

One caution. Moving to a fixed price only helps if the price, the scope and the risk are real. A contract that says “fixed price” while the bank still approves weekly timesheets and pays for every extra hour tells CRA very little.

Step 4: Is the work part of the bank’s business or the engineer’s own?

Integration asks, from the worker’s side, whether the work is part of their own business or is done as part of the client’s organization.

For the engineer, the work sits inside the bank. The engineer has a bank badge and email address, attends the same ceremonies as the bank’s own staff, and has no other clients this year. The corporation does no marketing and does not look for other work. This points toward employment.

What about helpers, investment and management?

Sagaz adds three more factors.

Hiring helpers: bank contracts often name the individual and require a background check, so the engineer cannot send someone else or hire help. That points toward employment.

Investment: the engineer’s corporation has spent a modest amount on its own laptop, a cloud account and a course. That is small next to what the bank provides.

Management: the engineer’s corporation issues invoices, keeps books and files its returns. Nearly every contractor corporation does these things, so on their own they carry little weight.

How do the tests compare side by side?

What does the full picture say for the engineer?

CRA weighs the tests together and asks the central question. On the engineer’s facts, most factors point toward employment. The engineer owns all the shares, has no employees and does not work for an associated corporation, so no exception applies. The PSB risk on these facts is high.

Here is the tax cost for one full taxation year at the current 11.2% rate. Revenue is $171,000 and expenses are $9,000, with no salary paid.

• Not a PSB: ($171,000 – $9,000) x 11.2% = $18,144
• PSB: expenses denied under section 18(1)(p), so $171,000 x 44.5% = $76,095
• Extra tax: $57,951

CRA looks at each year on its own facts. A new contract, a renewal or a change in how the work runs can change the answer.

What can an incorporated contractor do with this?

You cannot make the PSB question go away. You can understand your facts, document them and reduce risk where the facts allow it.

• Write down the real working facts each year: who sets the hours, whose tools you use and who carries the cost when work runs over.
• Keep records of the business features that are real: other clients, your own equipment, quotes, and fixed-price work you have delivered.
• Have your lawyer review contract wording. We are accountants, not lawyers, and contract wording is for your lawyer.
• Ask us to look at the whole picture. We review your contract and working facts as part of tax planning. You can read more about our PSB contract review.

You may also hear about Form CPT1. It is used to request a CPP/EI ruling on a worker’s status. A CPT1 ruling deals with CPP and EI. It is not a PSB ruling for income tax, though CRA looks at similar facts. We review whether it is useful in your facts.

The same tests apply to FP&A, audit, risk and compliance contractors placed at banks through agencies. If that is your work, please see our page for an accountant for finance contractors.

If you would like us to walk through these tests with your own contract and working facts, please book a consultation. You can also call 647-212-9559 or email info@gondaliyacpa.ca.

Frequently asked questions

What is the Wiebe Door test?

It is a set of factors used to decide whether a worker is an employee or is in business on their own account. The four main factors are control, ownership of tools, chance of profit and risk of loss, and integration. They are weighed together, not one at a time.

How does Sagaz relate to the Wiebe Door test?

Sagaz states the central question: is the person performing the services as a person in business on their own account? It also makes clear that no single factor decides the answer, and it adds hiring helpers, investment and management to the factors CRA weighs.

Which of the four tests matters most?

None of them decides the answer alone. Control is always relevant, but the weight of each factor depends on the facts of the relationship. CRA looks at the whole picture, year by year.

Does a client-supplied laptop make me an employee?

Not by itself. It is a tools indicator. We look at whether the client’s device rule is a security policy that applies to every vendor, and at which tools your corporation actually pays for and uses in the work.

Will switching to a fixed-price contract reduce PSB risk?

It can help only if the price, the scope and the risk are real. If the client still approves weekly timesheets and pays for every extra hour, a fixed-price label says very little. It is one fact among many, and it does not decide PSB status alone.

Is a CPT1 ruling the same as a PSB ruling?

No. Form CPT1 is used to request a CPP/EI ruling on a worker’s status. That ruling deals with CPP and EI, not with PSB status for income tax, though CRA looks at similar facts. We review whether it is useful in your facts.