Every year in January and February, Clinic Owners stress about year end. This includes getting financial statements done, filing the corporate income tax return (T2), making sure that T4 and T4As get filed, and more.
T4s and T4As can be a big part of this stress. Getting T4s and T4As wrong can create friction with your team members who have worked hard to support your business during the year.
To ensure a stress-free year-end payroll season for you and your team, we prepared this post with some important information that you should consider before preparing your T4s and T4As.
Before filing year end information slips with the CRA (primarily T4s and T4As in the year end context), it is important to have all of the relevant information that is necessary to file the slips with the CRA.
First of all, make sure to have employee and contractor details that are up to date. Key pieces of information include:
- Social Insurance Number (SIN) - note this is CRA’s unique identifier for each taxpayer. Most tax software will not let you prepare T4s and T4As without this. But keep in mind that SINs can change for a variety of reasons, so make sure the SIN you have on file is the most up-to-date SIN for your employee or contractor.
- Legal name
- Home address
Note: You are required to file T4s and T4As for all employees and contractors who worked for you during the year, so make sure you also have this information for people who are no longer working for you.
The T4 is commonly referred to as the Statement of Remuneration Paid. Quite simply, an employer is required to file a T4 for all money paid by an employer to an employee during a calendar year if the employee was paid more than $500 during the year.
Box 14 is where employment income gets reported. This includes (but is not limited to) salaries and wages paid to the employee, bonuses, commissions, etc.
If you have been processing payroll through a payroll platform for a while, preparing T4s can be quite routine.
While there are a lot of details to include on a T4, make sure to consider the following:
- If you own the clinic, you and/or your relatives working at the clinic may be EI exempt. The exemption should be reflected in box 28. (More info on this below).
- All remittances made by the employee (or that you made to the CRA on their behalf) should be reflected on the T4. This includes Income Tax dedicated, EI, CPP.
- Taxable benefits - If you provide your employees with taxable benefits that are not included in any other box, they get reported in box 40. Note that each specific benefit will have to be considered separately as to whether it is to be a taxable benefit or not. Usually your benefits administrator can provide you with a summary of this information on a per employee basis.
The CRA requires that T4s are filed electronically. You can either do this directly on the CRA website by uploading a file in the relevant format, or directly from your payroll software.
T4s are due February 28 for the prior calendar year. Penalties for filing late are steep, so make sure you file on time!
T4As have caused a lot of confusion over the years. Yes, they are a required filing!
Historically, CRA’s position on late filing/non-compliance was unclear. That has changed and in recent years we have seen the CRA issue late filing penalties if these are not filed on time.
T4As can be used to report a variety of different kinds of income.
In the context of your clinic, T4As are relevant for payments to contractors who are not delivering their services to your business through a corporation, but rather as individuals or sole proprietors. To be clear, you DO NOT need to issue a T4As form to contractors who are invoicing you through a corporation. Make sure you are clear on exactly who your contract is with and who is invoicing you.
Amounts paid to contractors would generally get reported in box 48 Fees for Service.
One challenge with preparing T4As is that the amounts paid can be hard to track down if not done through a payroll system. (Note: This is why at Enkel, we encourage clients to pay contractors through the payroll system). If you have not paid contractors through your payroll system, you will need to pull records from your accounting system to determine amounts paid to your contractor throughout the year. Watch out for duplicate vendor accounts in your accounting software. This can lead to the income being under-reported.
If you own the clinic you and/or your relatives who work at the clinic may be exempt from EI - If you paid it already, make sure you reflect what you paid on your T4, but you can claim amounts paid back. There are specific rules here, but here is a link to the CRA website with some more guidance: EI special benefits for self-employed people
A common question that Clinic owners have is whether they should pay themselves a salary or a dividend. This is outside of the context of this post, but is something that you should plan for proactively. This is something you want to be planning for each year with your tax advisor.
The specific decision will depend on your specific circumstances, cash flow needs, and long-term goals.
There is no “right answer” here.