Beyond Decriminalization: Sex-work, Human Rights and a New ...

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PIVOT LEGAL SOCIETYPART 5: Income Tax LAWPaying income tax and claiming income: Canada’s Income Tax Act, R.S.C.1985, (5th Supp.) c. 1 (the “ITA”) requires that every person who is aresident in Canada pay tax annually on his or her taxable income. Therequirement to pay income tax even applies to income earned throughcriminal activities. Sex workers are legally required to file tax returns andpay income tax on income received from prostitution, even if they commit acriminal offence in the course of their work. Many sex workers pay incometax on their earnings in the escort business or in massage parlours. However,some sex workers do not pay income tax, and have been somewhat shieldedfrom tax authorities because of the relative anonymity and secrecy thatresults from the criminalized status of their work.Income that independent or self-employed sex workers receive is classified as “business income.”If sex workers are employees, they must report their “salary, wages and other remuneration, includinggratuities” to Revenue Canada as “employment income.” Income from criminal activities is deemedto be “business income” subject to income tax. With the repeal of prostitution laws, the payment ofincome tax by sex workers may become increasingly necessary as Revenue Canada increases its effortsto collect tax from them.Sex workers expressed a variety of opinions on the subject of taxation. Project participants raisedfive main issues regarding taxation and prostitution:• Gaining access to the benefits of being a tax payer.• Protecting privacy interests of sex workers.• Calculating income from prostitution.• Calculating deductible business expenses.• Avoiding liability for retroactive tax. Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, s. 2. Ibid., s. 5(1). Ibid., s. 248(1) defines employment as “the position of an individual in the service of some other person (including Her Majesty ora foreign state or sovereign) and “servant” or “employee” means a person holding such a position.” The status of sex workers as eitherindependent contractors or employees will likely take on new significance in a decriminalized environment. Currently many ownersof massage parlours and escort agencies treat sex workers as independent contractors and do not make contributions to E.I. If operatingas independent contractors, sex workers are responsible for paying their own CPP, WCB, EI, etc.) See Revenue Canada pamphletRC4110 “Employee or Self-employed? “There are four common law tests used to help determine whether a person is an independentcontractor or an employee for tax purposes (Wiebe Door Services Ltd. v MNR, [1986] 2 C.T.C. 200 (F.C.A.); 671122 Ontario Ltd. v.Sagaz Industries Canada Inc., [2001] 2 S.C.R. 983). Under the “control test” the more control the payor has over the service providerthe more likely there is an employment relationship; under the “ownership of tools test” if the service provider provides his or her owntools for the job, there is more likely an independent contractor relationship; under the “entrepreneurial test” if the service providerhas a chance to make more profit and has a risk of loss, there is more likely an independent contractor relationship; under the“integration/economic dependence test” if the service provider wouldn’t be providing services but for the existence of the payor, thereis more likely an employment relationship. No test is determinative of a service provider’s status - it is a fact specific inquiry and theentire relationship between the employer and tax payer is examined. Revenue Canada Interpretation Bulletin, IT256R, online: Revenue Canada .158
BEYOND DECRIMINALIZATION: Sex Work, Human Rights and a New Framework for Law ReformSeveral sex workers stated that they declare their income to Revenue Canada:A. Many people like myself had to lie to find a way to claim income because withoutclaiming income you can never buy anything, . . . Many people own their ownhomes or their apartments, or have RRSPs and RESPs for their children. You can’t dothese types of things if you don’t claim an income. Yes there’s many people who claimnothing again that would be the exception, because really you can’t live withoutclaiming [something].- female former off-street in-call sex workerA. I do know that escorts . . . pay their taxes . . . most escorts anyway, or a large numberof them do pay their taxes. The few that don’t, they really live hand to mouth.- female off-street out-call sex workerOther participants commented that many sex workers do not claim their income:A. Well maybe there is like, five percent that I . . . actually see pay tax, because they needto, if they want to ever buy anything. And I know lots of people that have boughttheir homes and or have gone onto start a business. Many have gone on to start abusiness and failed. But those are the only people that claim their income.- female off-street in-call sex workerSome sex workers said that they do not claim their income because of the criminalization ofprostitution:A. Well I just don’t think anyone should claim unless it’s legal.- female off-street in-call sex workerOne sex worker was fundamentally opposed to the idea that the government should receive any of theproceeds from prostitution because that places the government in the same position as a pimp:A. No, I refuse to pay taxes to the government for selling my body. That makes thegovernment legalized pimps.- female off-street out-call sex workerSome emphasized the hypocrisy of the government taxing prostitution while at the same timecriminalizing living on the avails of prostitution:A. No, I refuse to pay taxes to the government for selling my body. That makes thegovernment legalized pimps.- female off-street out-call sex workerA. Now as far as paying taxes go, it really depends on the person . . . . In fact manypeople think that would be living off the avails and don’t think that the governmentshould earn tax on that if the profession is illegal.- female massage parlour owner, former sex workerOverall, sex workers felt that the repeal of the criminal laws surrounding prostitution may meanincreased pressure to pay taxes on income generated from prostitution. Sex workers predicted a rangeof benefits and disadvantages arising from this change.159
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