Small business operators across Canada are preparing to enjoy some well deserved time off this holiday season. But it’s not all rest and relaxation.
In fact, for many small businesses – particularly those with employee payroll to manage – the end of the year is the right time to for a quick review of the books and employee data. A simple year-end check can save small businesses from throwing money down the drain due to costly compliance fines for issues such as CPP, EI, and income tax deductions in the year ahead.
This checklist provides six simple steps for small businesses to get their payroll data in order:
1. Verify employee data
The end of the year is a good time to review employee information that can affect your payroll remittances and, possibly, pay cheques issued in the next tax year.
Any employee who received a pay cheque during the year will need to receive a T4 slip for that year, whether or not they are currently an employee at year-end.
Be sure to check:
- Names, addresses, birth date and social insurance numbers (SINs)
- That you have federal and provincial TD1 forms for each employee
2. Verify and review benefit information for your employees
Employee benefits, such as reimbursement of personal expenses or free use of property, goods or services you own, may or may not be taxable depending on the type of benefit or allowance and the reason an employee receives it, so it’s important to review the benefits you have given each employee and whether each benefit is taxable or not.
Taxable allowances and benefits are subject to Canada Pension Plan (CPP) and employment insurance (EI) withholdings and may be subject to GST/HST as well.
This Benefits Chart from the Canada Revenue Agency lists various taxable allowances and benefits and shows whether or not they are subject to CPP and/or EI deductions, as well as what the benefit’s code on the T4 slip is and whether or not GST/HST needs to be included in the value of the benefit for income tax purposes.
The Canada Revenue Agency’s (CRAs) Benefits and Allowances page lets you search for benefits and allowances alphabetically.
3. Verify and review payroll deductions
- Have you deducted the correct amount of income tax from each employee?
- Have you deducted the correct amount of Canada Pension Plan (CPP contributions) from each employee?
- Have you deducted the correct amount of Employment Insurance (EI) premiums from each employee?
If you have been using software such as QuickBooks Payroll, these deductions have been automatically calculated for you each payroll run.
See the Canada Revenue Agency’s T4001 – Employers’ Guide to Payroll Deductions and Remittances for details if necessary.
If you have made errors such as overpaying an employee or deducting too much or too little CPP or EI, this page of the CRA’s website explains how to correct each of these mistakes.
If you are an employer in Quebec, note that “The Quebec provincial government administers its own provincial pension plan called the Quebec Pension Plan (QPP), its own provincial income tax and, the Quebec Parental Insurance Plan (QPIP), which also may be referred to as the Provincial Parental Insurance Plan (PPIP).
Employers with employees in Quebec have to deduct contributions for the QPP instead of the CPP, if the employment is pensionable under the QPP. Employers have to take deductions for both the QPIP and EI, if the employment is insurable. The QPP, QPIP, and Quebec provincial income tax deductions are sent to Revenu Québec, while the EI and federal tax deductions are sent to the CRA” (Canada Revenue Agency).
4. Complete a T4 slip for each employee
It is your responsibility as a Canadian employer to send each employee an accurate T4 slip each year for income tax purposes if the employee was paid more than $500 or if you had to make any payroll deductions, such as CPP/QPP contributions) from the employee’s remuneration.
Once again, using payroll software greatly simplifies the task. QuickBooks Payroll, for instance, tracks federal and provincial taxes and automatically fills in T4 slips for you.
5. Complete and remit a T4 Summary form
Once all your T4 slips are done, you’ll be able to complete (or have your payroll software produce a report) your T4 Summary form for the Canada Revenue Agency, which will report the totals of the amounts reported on your T4 slips.
If you have more than one payroll account with the CRA, you must complete a separate T4 summary for each account.
6. Review employee wages and benefits for next year
Year end is also the best time to review the wages and benefits your employees have received over the past year. It will be time for the first payroll run of the new tax year before you know it!
Feb 28: Last day to file a T4 or T4A information return with the CRA and forward information slips to your employees.
Your Remittance Date: Determined by your remitting periods. See the CRA’s Remitter Types and Due Dates.