Both as a business owner and an employee should understand every nook and cranny of how the payroll system is run in Canada. This can be very helpful. By learning a bit about some specific tax slips, you can comprehend the bigger picture of how the tax amounts are withheld and learn a few smart ways to reduce the amount you and your employees owe in terms of taxation.
In this article, we will discuss in detail about the most common income slips: T4 and T4A. This is a common tax slip that you need to file whether you’re an employer, a full-time employee or are operating as a consultant or freelancer.
What exactly is a T4 tax slip?
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According to the Canada Revenue Agency, the T4 tax slip is officially named as Statement of Remuneration Paid. If you have worked and received any income through employment throughout the financial year, your employer will have to send you a T4 slip. Employers are obligated to issue T4 slips to their employees as part of a yearly payroll. This procedure has become progressively digitalized with the help of accounting softwares.
This particular tax slip delivers statistics regarding the income that an employee has earned while working with a specific employer, it also gives information regarding some specific deductions in tax including the Canada Pension Plan (CPP), income tax, employment insurance and many others. If you’ve switched several jobs with different employers within the course of one year, you should be expecting to receive separate T4 slips from each of your employers.
Employees that have operated in different provinces may have exceptions. For example, those who have operated in Quebec will obtain an RL-1 slip instead of a T4. Similar to the T4, the RL-1 slip particulars your service salary as well as amounts subtracted from your pay for Quebec programs, including the Quebec Pension Plan (QPP) and Quebec income tax. The RL-1 tax slip, while apparently the same as the T4 slip, has many dissimilarities. When you are filing taxes, you will need to ensure that the information that you are providing is hundred percent correct and accurate as federal taxes and Quebec provincial taxes are calculated differently by the CRA.
There is a deadline for submitting your T4 and T4a tax slips to the CRA, if you are an employer, you have to submit the slips by the last day of February. If you manage to submit before the deadline it allows for the distribution of the T4 slips by the beginning of the month of March. The CRA now has an online portal that helps you keep track of tax slips and also allows you to manage your tax slips. If you choose to register for the CRA’s MyAccount, you will have the advantage of accessing your current and previous year’s tax documents online.
How is the T4 slip different from the T4A slip?
Now that we have gone through in detail what a T4 slip is, let’s discuss what is considered to be its sister slip, the T4A. The T4A tax slip is a Statement of Pension, Retirement, Annuity, and Other Income. If you have earned any income through self-employment throughout the past financial year, you report it as a T4A vs. T4. While the T4 and T4A slips are often found similar to each other, the T4 includes in detail various payroll contributions that you have as an employee which the T4a does not. These consists of contributions such as employer pension plan matching contributions and union dues.
If you are self-employed, it Is not necessary that you will receive a T4a slip from each of your employers or clients. Usually, T4As are only issued by companies that assess you as a consultant rather than a service provider and is not a mandatory legal requirement. Depending on if you receive a T4A or not, you are anticipated to account all business and self-employment income on the Tax Form T2125. Additionally, if you are receiving Old Age Security, you will obtain a different slip, the T4A(OAS), from the CRA. If you’re already retired and are currently receiving CPP benefits, the CRA will send you a T4A(P) slip, which will account your payments in detail. You are expected to report any pension or retirement income on your T4A slip as well.
The T4A provides the CRA with a record of income received separate to the archetypal employer-employee relationship and which is submitted by the individual himself. For those who are self-employed, the responsibility to report the correct income is on you. The advantage to self-submission is that you can claim business expenses or operating costs that in turn reduces the amount you owe in terms of tax.
What tax slip do you need to submit if you are self-employed?
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The first thing to consider is your current job status, whether you are an employee or if you are self-employed. To determine that you can find the relevant information on your tax slips and the Canada Revenue Agency sends a T4 slip attached with either a CPP or a QPP. Further, if the source of your income is withholding any pension plan contributions or income tax amounts, then you are considered an employee. If you receive a T4 tax slip with neither taxes nor contributions withheld, you are considered self-employed and are exclusively accountable for paying them.
There are several sources for self-employed or business income, such as:
- An undertaking of any kind
If the CRA issues you a T4 tax slip at the end of the financial year, that includes CPP contributions that have been co-ordinated by your employer and with income tax remitted, then you are considered an employee of the organization. It is quite obvious that if you are an employee, you are not entitled to claim business expenses or operating costs on your CRA tax return. As an employee, depending on your need, you may file a T4A or a T4, or even a combination of both.
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