Understanding every detail of your how to run payroll is necessary as a business owner. In the same sense, it's in your best interest to learn a bit about specific CRA tax slips to get a fuller picture of the amount of taxes that are withheld and how to smartly reduce the amount of taxes you and your employees owe.
Our blog focuses on how to decipher CRA tax slips, specifically t4as and t4s. Whether you’re an employer, a full-time employee or are operating as a consultant or freelancer, this blog will break down which tax slip, T4A vs. T4, you need to file.
According to the CRA, the T4 slip is also known officially as Statement of Remuneration Paid. If you’ve worked and earned any employment income throughout the year, you can expect to receive a T4 slip from your employer. As part of a yearly payroll, employers are required to generate and send T4 slips to their employees. This process has become increasingly digitized, and organizations have brought their payroll process online via tools and systems such as Knit.
This slip provides information regarding the income that you earned while working with a specific employer, as well as any deductions (i.e. Canada Pension Plan (CPP), income tax, employment insurance, etc.). If you’ve had jobs with several employers through the course of one year, expect to receive separate T4 slips from each of them.
Employees that have worked in different provinces may have different considerations. For example, those who have worked in Quebec will receive an RL-1 slip instead of a T4. Similar to the T4, the RL-1 slip details your employment income as well as amounts deducted from your pay for Quebec programs, including the Quebec Pension Plan (QPP) and Quebec income tax.
Note: the RL-1, while seemingly the same as the T4, has many differences. When filing taxes, ensure that the information that you are filling out is correct and accurate as federal taxes and Quebec provincial taxes are calculated differently by the CRA.
As an employer, you have until the last day of February to submit T4s to the CRA. Submitting before the February deadline allows for the delivery of the T4s by the beginning of March.
The CRA now has an online portal that helps keep track of and manage your slips. Registering for the CRA’s MyAccount for Individuals portal will make it easier for you to access current and previous tax documents online.
Now that we understand what a T4 slip is, let’s dive into its sister slip, the T4A. The T4A is a Statement of Pension, Retirement, Annuity, and Other Income. If you have received any self-employment income throughout the past year, you report it as a T4A vs. T4.
While the T4 and T4A slips may seem similar, the T4 includes more detail around various payroll contributions that you have as an employee. These would consist of contributions such as employer pension plan matching contributions and union dues.
Be mindful: if you are self-employed, you may not receive a T4A from every employer or client. Generally, T4As are only sent out by companies that view you as a consultant vs. a service provider and is not a requirement. Depending on if you receive a T4A or not, you are expected to report all business and self-employment income on Form T2125.
Further, if you are eligible and are receiving Old Age Security, you will receive a different slip, the T4A(OAS), from the CRA. If you’re retired and receiving CPP benefits, the CRA will send you a T4A(P), which details your payments. You must report any pension or retirement income on your T4A as well.
The T4A provides the CRA with a self-submitted record of income earned outside of the typical employer-employee relationship. For those who are self-employed, the onus is on you to ensure that you report accordingly. The upside is that you can claim business expenses or operating costs to reduce taxes owing.
To determine which slip you will need, you must first establish whether you’re an employee or are self-employed. This information can be found on your tax slips, but in essence, if the CRA sends you a T4 that includes either CPP or QPP, any pension plan contributions and income tax withheld directly at the source, then you are considered an employee.
If you receive a T4 with neither taxes nor contributions remitted, you are considered self-employed and solely responsible for paying them.
A more straightforward way of understanding this is to view self-employment income as business income. Business income has several sources:
If the CRA issues you a T4 slip at the end of the year, including CPP contributions that have been matched by your employer and income tax deducted, then you are considered an employee of the organization. Generally, as an employee of an organization, you cannot claim business expenses on your CRA tax return.
There are exceptions to this rule, including GST and HST (and in Quebec. QST) that you paid to earn your employment income. These exceptions only apply if you have an employment contract with your employee that states that you are responsible for these expenses and if your company does not receive an allowance.
As an employee, depending on your need, you may file a T4A or a T4, or even a combination of both.
Equally, as an employer, you may need to submit both T4 or T4As to the CRA. The submission of these slips depends on the employee’s status within your company (including if they are terminated) By understanding the rules and minimum requirements provided by the CRA, you avoid making costly mistakes when filing.
Check out the Knit blog to learn the basics around payroll.