A daycare assistant has been working at my daycare for a couple of months now. She is working from 3 to 4 hrs per day. I was planning on having her for only a few weeks, but she has been such a great help that now want to keep her. I am currently paying cash (that means I can not deduct her salary when filling my income taxes, because she may not be declaring this income). The reason I did it his way is because a nanny/daycare worker in this area charge usually more or work for more hours than what I currently offering and that was the only way I could attract candidates for this part time temporary job.

Now I would like to start deducting that expense so I am willing to offer more hours 5 to 6 hrs of work and make it a permanent position. My question is how have you handled it for tax purposes as an "employer-employe relationship" or as a "contract of services"? I would like to treat it as a "contract of services" so I do not have to deal with cpp, EI contributions, etc. Can you justify this? Would I get in trouble if I do not treat her as an employee?