Business owners often face confusion each year on when to issue a T4 versus a T4A. This is particularly true for those who employ a variety of workers with different employment statuses, including full-time, part-time, or occasional. The question arises as to which form to issue to each worker and what the differences are between the two. Ultimately, this confusion can impact both the employer and the workers, so it’s important to understand the distinctions between T4s and T4As.
Differentiating Between an Employee and a Subcontractor
Distinguishing between when to issue a T4 versus a T4A requires determining whether an individual is an employee or a subcontractor. To make this determination, various factors come into play, including the level of control exercised by the business owner, who provides the tools and equipment, the ability to subcontract work or hire assistants, the level of financial risk taken by the worker, the degree of investment and management responsibility held by the worker, and the potential for profit. If a worker meets several of the criteria, a subjective determination must be made as to whether they should be classified as an employee or a subcontractor.
If the worker is deemed an employee, then the employer must comply with all rules applicable to employees in their province, such as deducting payroll taxes, CPP, and EI and contributing the employer’s portion of CPP and EI.
What is the format of a T4 slip?
A T4 slip is an important document that summarizes an employee’s earnings and deductions for a given year. It contains several boxes that show various amounts related to employment income, taxes, and contributions. Here’s a breakdown of the important boxes to keep in mind:
- Year box: Indicates the year in which the income was made.
- Employer’s name box: Shows the details of the employer issuing the T4.
- Employee’s name and address box: Should be addressed to the employee.
- Box 14: Shows the employment income made during the year by this employer.
- Box 16: This is how much was contributed towards the Canada Pension Plan.
- Box 18: Contains the employment insurance (EI) premium remitted to the CRA.
- Box 20: Any contributions made towards the Registered Pension Plan.
- Box 22: This is the amount of income tax deducted from the employee’s pay during the year.
- Box 44: If the employee is part of any union, it indicates any union dues paid.
- Box 46: Any charitable donations made from the earnings made through the employer.
- Box 42: This shows the commission income made from this employment.
In short, a T4 slip is a comprehensive document that provides an overview of an employee’s income and deductions for a given year.
What is the Appearance of a T4A Slip?
A T4A slip bears a striking resemblance to a T4 slip, with the difference being that it’s generally issued when the payment is over $500 and applies to various types of income, such as self-employed commission income, pensions, annuities, fees for services, scholarships, and other income.
Like the T4 slip, it includes the tax year, payer’s name, and payee’s details in the recipient’s name and address box. Some important boxes to keep in mind are:
Box 020: Indicates commission income received by self-employed individuals, and the amount shown here should be the net amount, excluding GST/HST. Recipients are also required to file form T2125 on their personal tax return, which is a statement of business or professional activities. Box 022: Shows any income tax that was withheld for this T4A slip. Box 048: Displays fees for services provided, similar to box 020. The amount shown here is also a net amount that excludes GST/HST. Box 105: Contains scholarships, fellowships, bursaries, and study grants (awards) that students may have received from their school or university. Local and international students may receive a T4A slip if they had received any such payments from an educational institution.
Were you aware that if employers fail to issue these slips on time, they can be subjected to fines by the CRA?
Employers who fail to issue these slips on time may face penalties from the CRA.
Our goal is to ensure that you receive the maximum benefits regardless of where you reside in the country. If you would like to have your tax return filed by a qualified tax accountant, you can book a call with our expert to take care of everything from start to finish. Our team is dedicated to helping you achieve your financial goals.