If you have employees, you know you have to issue them their T4 slips each year so they can file their personal tax returns. But do you have all the information you need to make sure their forms are accurate and meet the CRA’s requirements? These nine tips can help you make sure you issue these annual forms with the confidence that your employees are getting the documentation they need and that you are staying in compliance with the law.
Handling Union Fees
Whether you are employed or self-employed, the Canada Revenue Agency (CRA) allows you to deduct certain union fees on your tax return. If you employ individuals who pay union fees, you should understand certain tax rules. If your employees pay their own union dues and you withhold the dues from their pay, detail that information on their paycheque stubs. At the end of the year, note the amount of dues they paid in box 44 of their T4 slips.
At tax time, consider reminding employees they can only deduct union dues. They shouldn’t deduct pension plan charges, initiation fees, or licences. If you pay union fees for your employees, the CRA may require you to report the dues as a taxable employee benefit. Essentially, the CRA says that if the dues benefit you, the employer, they are not a taxable benefit to the employee. But if the dues don’t directly benefit you, they are considered a taxable benefit to the employee.
If you are an employer who pays or reimburses membership dues to your employees and that membership is mandatory, then the CRA considers you the beneficiary of these dues. If the dues benefit you as the employer, don’t report the payments as a benefit on your employees’ pay stubs or T4 slip. In contrast, if your employees benefit from the union, rather than you, the amount of the dues is a taxable benefit. In this case, you should withhold income tax as if the benefit were part of their pay. You should also pay Canada Pension Plan contributions and remit the matching employer amount.
In most cases, union fees are not a cash benefit, which means you don’t have to worry about paying employment insurance premiums on that amount. In addition to union dues, the CRA also offers special deductions for liability insurance, membership fees in professional organizations, and professional board dues. As an individual, you should know what’s deductible in your industry, and as an employer, you need to know how to report these fees if you pay or facilitate payment on behalf of your employees.
Report Insurance Benefits
If you pay life insurance, critical illness coverage or other insurance benefits on behalf of your employees, you must report the amount you pay on their T4 slips. You should report these amounts in box 14 along with the income you paid your employee.
Many employers are starting to offer wellness benefits to their employees. This includes allowances for massages, reimbursements for gym memberships, and similar expenses. Again, the CRA states that these are taxable benefits you should report in box 14. As a general rule of thumb, you only have to report benefits as taxable income if the employee is the main beneficiary and the benefits provide a direct economic benefit. As a result, if you offer services such as on-site yoga for all your employees, you typically don’t have to report that as income on their T4 slips.
Sending an employee on an all-expenses-paid vacation is a great perk, but if you offer your employee this kind of bonus, you also need to report the fair market value of the vacation as income. Your employee must pay income tax on that amount, but that’s still cheaper than having to pay for a vacation on their own.
Prepare T2200 Forms
If you pay commissions to your employees or cover some of their vehicle expenses, you also need to remember to include those amounts as income on the T4, but that’s just the first step. In most cases, employees who earn commission or use a vehicle for work cover some of their own expenses, and they may be able to deduct some of these employment expenses on their tax returns. But they can only claim these expenses if you fill out form T2200 (Declarations of Conditions of Employment) for them.
Saw Rental Payments for Loggers
In a lot of cases, professional loggers provide their own tools, and their employers often pay a monthly or weekly rental fee for the use of those tools. If you do that in your business, the CRA reminds you to to report those rental payments as income. In this case, you also should fill out a T2200 form for your employees. If you require them to use their own power saws and tree trimmers for work, they can deduct some of their costs.
Fill Out T4 Slips for Self-Employed Barbers and Drivers
If you employ barbers, hairdressers, or drivers, you need to fill out a T4 slip for them just as you do for all your other employees. However, the Canada Revenue Agency has special rules for self-employed barbers, hairdressers, and drivers, and you must also fill out T4 slips for them.
As you are not paying these professionals directly, you should not report any income in box 14, but you need to remit Employment Insurance (EI) and Provincial Parental Insurance Plan (PPIP) contributions for these employees. As a result, you need to note their EI insurable earnings in box 24 and their PPIP insurable earnings in Box 56. You also have to note the EI premiums you paid on their behalf in box 18 and the PPIP premiums paid in box 55. Finally, for barbers and hairdressers, you need to note code 83 in the other information section, and you need to note code 82 for drivers.
If you pay pension, retirement, or annuity payments to past employees, you have to issue a T4-A slip to them. You should also use this slip for most independent contractors, and it’s up to you to provide a full and accurate accounting of all income you paid these contractors. Because the nature of contract work often involves workers that may come and go, make sure you’re keeping records of their time and compensation that are as thorough and timely as your full- and part-time employees. Fill out contractors’ paperwork on the day you pay them, while everything is fresh in your memory and near the top of your desk.
T4-NR slips fill almost exactly the same purpose as T4-A slips, but you need to issue them to non-residents. For example, if your business pays pension income to someone who has retired in another country, they are likely no longer a Canadian resident, even if they are a citizen. As a result, they need a T4-NR slip. The “NR” stands for non-resident.
Turn to Technology
To make T4 slips easier to prepare, make use of technology available to you. You can use the Expenses by Supplier Summary report on QuickBooks Online to find all the information you need to accurately complete T4-A forms. This feature provides access to profit and loss breakdowns in each contractor transaction and allows you to view expense account totals.
Running a successful business is no longer a distant dream only meant for a lucky few. Mindful care of the numbers makes it all the more possible, especially during tax time. QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.