T4s, T5s and Common Mistakes
Hello All,
Recently, I was helping an organization review their payroll filings.
Everything looked fine in QuickBooks Online. Payroll entries had been recorded and it appeared that remittances had been sent.
But when we did the year-end bank reconciliation, we noticed that the payments hadn't actually gone through. No one realized the remittances still had to be submitted manually.
The consequence was that there were several months of missed payments and approximately $5,000 in penalties. To be fair, there had been a transition in accounting staff and this particular step hadn’t been properly communicated.
This made me contemplate some of the T4/T5 mistakes I have seen (and made) over the years that can be easy to overlook.
Salary paid without verifying remittances
Similar to my client, payroll was “run,” but no one confirmed that CRA payments cleared the bank.
Forgetting taxable benefits
If the company pays for items such as:
Life insurance
Personal use of a company vehicle
Certain gifts
These may need to be included in Box 14 as taxable income on the T4.
How to Calculate Your Automobile Taxable Benefits for the Purposes of the T4 and Rl1
Shareholder loans not converted to dividends
Owners withdraw funds but don’t realize they must either:
Repay the loan, or
Declare a dividend
within one fiscal year of the withdrawal.
Dividends, Shareholder Loan and Journal Entries in QBO
Slips prepared but not actually filed
Once T4 or T5 is prepared , it must be submitted to CRA (and the Quebec equivalent form to Revenue Québec) either electronically or by mail.
Once submitted, it is important to confirm receipt and that no errors were detected that would require resubmission.
Books that don’t match the slips
After you declare a dividend and prepare the T4, you must reflect the entry in your books.
Payroll liabilities/expenses should reconcile to your T4 filings.
Missing (or misunderstanding) the $50 threshold
You generally do not need to issue a T5 if total investment income or dividends paid to a recipient are less than $50.
Incorrect dividend classification
Canadian dividends are “grossed up” for tax purposes.
It’s important to distinguish between:
Eligible dividends
Non-eligible dividends
Most small private corporations pay non-eligible dividends, which currently have a 15% gross-up rate and a different dividend tax credit. That being said, there are situations where small business corporations can pay eligible dividends.
No regular bank reconciliation
Regular bank reconciliations would have prevented the $5,000 penalty mentioned above. If no one reviews the bank statements consistently, errors might not be noticed for months.
What Are Bank Reconciliations and Why Every Business Should Do Them
Final Thoughts
Tax time can be stressful and it's easy to make mistakes especially given that the T4/T5 filings are only done once a year. The best way I have found to avoid (or at least reduce) mistakes is to ensure that a) my systems are as robust as possible and b) using checklists to ensure I don't overlook anything.
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