With the Canada Revenue Agency payroll filing deadline rapidly approaching, employers often ask what slips to issue to individuals not on the payroll, including self-employed contractors, casual labour, or other payments made to individuals for services.
This question is often prompted by the payee asking to provide them with “some sort of slip,” an employee not wanting to have tax withheld on advances or bonuses, or by a company trying to make up for, or protect themselves from, incorrect or incomplete payroll compliance.
What is a T4A slip?
A Statement of Pension, Retirement, Annuity, or Other Income slip (T4A slip) is used to report employment amounts not reported on a T4 and other income.
What types of common income are not reported on a T4A slip?
Amounts related to employment – Amounts paid for bonuses, commissions, management fees, and most taxable benefits and allowances paid to employees are reported on the T4 slip, and tax must be appropriately withheld.
Payment for construction services – Payments made by businesses and individuals with construction as their main business activity to subcontractors for construction services use Form T5018 instead of a T4A.
What type of common income is reported on a T4A slip?
If the total of all payments in the calendar year exceeded $500 or tax was withheld, a T4A slip must be issued for the following types of income:
- Self-employed commissions: Commissions paid to independent agents net of HST/GST. Common examples include self-employed real estate and insurance agents.
- Fees or other amounts for services: Any fees or amounts paid for services, net of HST.
- Other income: Any amount which you do not have to report elsewhere on a T4 slip.
- Shareholder loan benefits.
For the complete list of what to report and what not to report on a T4A slip, click HERE.
Do I issue a slip to my self-employed contractor?
There some ambiguity on the part of the CRA on whether or not to issue a slip for the self-employed contractor. A cursory reading of the CRA’s guide to T4A filing and compliance requirements (RC4157 (2016)) (the “Guide”) and even the CRA website leads one to conclude that T4A is for employment-related income and not self-employed income. However, the Guide indicates that “any” fees or other amounts relating to services must be reported, which could include any amounts paid to self-employed individuals. On the other hand, the CRA is not assessing penalties for failures relating to the completion of box 048 for these fees (page 12 of the Guide), which seems to indicate CRA is not overly concerned with this reporting. The Guide further requires “any” other amount which you do not have to report elsewhere on a T4A slip to be reported as “other income” which seems to be a catch-all for all types of unreported payments.
What does the Income Tax Act say?
Income tax regulation 200(1) states that every person who makes a payment described in subsection 153(1) of the Act shall make an information return in prescribed form (with exceptions as listed) and Section 153 (1)(g) states that every person paying at any time in a taxation year fees, commissions or other amounts for services shall deduct and withhold appropriate deductions (with exceptions as listed).
The income tax act, therefore, seems to imply that a slip is to be prepared (and tax withheld) for any fees or service made to any taxpayer, even corporations.
A tax slip for your plumber, mechanic, or cleaning service?
The Income Tax Act, together with the CRA’s Guide and interpretation, leads to the conclusion that while a T4A should be issued for any services provided, because of the unfeasibility and administrative burden of compliance, the CRA is not assessing penalties for failure to report fees for services on T4As. It follows that if a service provider requests a T4A, one should be provided, but it also explains why most businesses do not issue T4As other than when they are related to employment.
Erring on the side of caution – Not a substitute for payroll compliance
The CRA is increasingly challenging and enforcing the position that remuneration paid to shareholders and directors of a company, many types of “self-employed” arrangements, and even casual labour, are factually employment income. This position is often in conflict with the self-interest of both business owners and self-employed individuals who prefer not to have employer-employee relationships.
With payroll and other audits on the rise, there is one notion that T4As should be issued to anyone receiving payments from a business “just in case the CRA asks.” The other belief is to not issue any slips at all for fear it will just lead to more questions. But the question of employment versus self-employed is a question of fact and issuing a T4A slip does not change the fact of whether one is employed or self-employed. Penalties and interest also apply to failing to withhold income tax on certain T4A income.
Except when specifically prescribed, T4As are generally issued in very limited circumstances by most small- to medium-sized businesses and cannot be used as a substitute for not issuing a T4 or not making source deductions.
The T4 and T4A filing deadline is February 28th. Call Sloan Partners to help you navigate through the complex and often confusing world of payroll and tax compliance.
Disclaimer: This material is for discussion and educational purposes only. As it deals with technical matters which have broad application, it is not practical to include all situations and applicable laws, practices, and policy are subject to change. A qualified professional should be consulted before tax information is filed. None of the persons involved with the preparation of the above material accepts any legal responsibility for its content or any consequences arising from its use.