When I was employee I never really gave much thought to the T4 (and the Quebec equivalent RL-1) process . I suppose I expected that someone, somewhere pressed a button and they would magically appear as an envelope on my desk. As I transitioned to being an independent small business accountant, who was now responsible for preparing this information and providing guidance to my clients, I realized that the process was somewhat more complicated. Luckily there is software and a variety of resources to help you with the process.
Deadline for submission of T4 and T5 slips and summaries is February 28th. In Quebec the same deadline applies to RL-1 and RL-3 slips and summaries
What is a T4 (RL-1)? Salaries paid to employees and business owners require preparation of T4s and RL-1s. The T4 is essentially a calendar year aggregation of employment income paid plus deductions at source remitted including: EI, CPP/QPP, QPIP, QHSF, Federal Income Tax, Quebec Income Tax. In addition to salaries, employment income also includes bonuses, vacation pay, tips and taxable benefits like car allowances provided to employees that cover personal use. The full list of items to be included can be found here
How to Prepare a T4(RL-1)? There are several ways to fill out your T4 forms:
- If preparing one or two slips, you can use the fillable forms provided by the CRA- Information that you need to prepare the T4 slip . Keep in mind that when the forms are submitted manually, a summary will also have to be prepared. No summary is required when slips are filed electronically. There is also a guide for the preparation of RL-1 slips for Revenue Quebec
- Employers preparing more than 50 slips must file their information electronically.
- Two copies of the T4 (and RL-1) slip have to be provided to the employee either via mail or in person.
- If you have a payroll provider like ADP, they will often prepare and submit the T4 slip and summary on your behalf. When in doubt it is important to confirm this with your payroll provider. Alternatively, they will provide you with all the necessary information in an easy to use format.
- Certain accounting software like QuickBooks and Simply Accounting have the forms and the information for the summaries. Please see how to file your T4 with Quickbooks. QuickBooks allows you to efile the T4 slips.
- The process for preparing the Quebec slips and summaries (RL-1s) is very similar. The major difference is that regardless of whether you are manually submitting the RL-1 slips or efiling them, you are required to complete and submit the summary. Usually there will be a balance owing representing 0.08% of the gross salary which is payable, at the end of the year, to the CNT (commission des normes du travail). 3rd party payroll providers, while doing everything else, often do not prepare this summary so it is very important to verify whether you need to do this.
- If you are unsure about the process, it might be prudent to have your accountant take care of this for you.
- Certain types of income do not require a T4 slip including lump sum payments, annuities, fees to non-residents under specific circumstances. A full list can be found here.
- In Quebec health insurance paid by the employer on behalf of the employee are taxable. This needs to be reflected in employment income as well as Box J of the RL-1.
- Withdrawals by owners of an unincorporated business do not require a T4 slip as they are taxed on the net profit of the business. Instead sole proprietors and partners must fill out the T2125 which is included in the personal tax return.
- Penalties for not filing the T4 return by the deadline of February 28th ranges between a minimum of $100 for less than 5 returns to $7,500 for those with over 10,000 returns.
- T4s do not have to be prepared for remuneration less than $500 unless you provide group term life insurance benefits which have to be reported regardless of the amount.
What is a T4A?
- Non employment income type payments made to individuals should be reported on a T4A slip. These include commissions paid to self-employed individuals, lump sum payments, pensions etc. A full list of the types of income and the corresponding codes
- Submission of slips and corresponding summaries (if filing manually) are due to the CRA by February 28th. The same deadline applies for distribution of slips to the relevant recipients.
- Details on preparing the slips and access to forms can be found at the CRA Website here
- In Quebec there is no exact equivalent to the T4A slip. Instead these amounts are often included in Box O of the RL-1 slip. Please refer to the Revenue Quebec Guide with reference to Box O for further details
Employers have the burden for preparation and submission of T4 and T4A slips, so it is important that small business owners have a fundamental understanding of the process. If you only have a handful of salaried employees the process is fairly straightforward. It does however start to get a little more complicated once you have other non-salary type items including taxable benefits and group term benefits, so make sure you do it correctly and on time.
Ronika Khanna is a Montreal tax and small business accountant who helps business owners with their accounting and tax filing needs. Please sign up to receive articles pertaining to small business, accounting, tax and other occasional non business topics of interest. You can also follow her on Facebook or Twitter and Google Plus