Why do banks and other companies in Canada that employ independent contractors to do IT work insist that the contractor be incorporated, as opposed to a sole proprietorship?

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    Many don't, but I presume enough do that this is a reasonable question. – ChrisInEdmonton Jan 29 '15 at 20:41
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    How is it "personal finance"? – littleadv Jan 29 '15 at 22:03

They believe that it reduces the risk that Revenue Canada will deem you to be an employee and make them pay a whole pile of tax, EI, CPP and so on that should have been paid if you had been hired as an employee. It's my recollection that the employer gets dinged for both the employee and employer share of those withholdings (and generally the employer's share is larger than yours) so they really want to prevent it.

There's a Revenue Canada publication about whether you're an employee or not. There's nothing on it about being incorporated, but still employers feel more protected when their contracts are incorporated.

We did work as a sole proprietorship at the very beginning, so that we could deduct our losses against employment income earned earlier in the year, before we started the business. You can find clients who will take you on. We incorporated once the losses were over with (basically we had bought the equipment and office supplies we needed to get started.) It's a simple and relatively inexpensive thing to do, and gives clients a sense of protection. It won't protect you from your own poor decisions since you'll be a director of the firm.

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