Filing T4s for Your Business

The Meeting: T4s Can Be a Challenge For Small Business Owners

Jason owns a service business that hired several employees last year. Recently he called to discuss his concerns about preparing and filing T4s. He said, "I'm unsure of the process and worried about making mistakes. I don't want any penalties or fines".

We reviewed the requirements for T4 preparation and filing, including the deadline for submitting the forms and the necessary information to include. We also discussed best practices for ensuring accuracy and avoiding common errors.

I assured Jason that as soon as he understood the T4 process and filing requirements, he would be more confident about filing correctly and staying in the good books of the CRA.

Overview: T4 Form and T4 Filing

The T4 form is mandatory if you have employees or commissioned salespersons or if you provide benefits in exchange for work. It reports employment income, benefits, and statutory deductions such as Canada Pension Plan contributions (CPP), Employment Insurance (EI), and taxes.

You must submit the T4 information for each employee and a T4 Summary to the Canadian Revenue Agency (CRA) by the end of February each year.

Employee Copies

You must also provide each employee with a copy of their T4. They can then use this form to complete their personal income taxes.

Penalties for Late or Inaccurate T4s

As an employer, you're liable for discrepancies or errors in a submitted T4 form. Depending on their severity, you might be subject to monetary penalties. The penalties associated with incorrect or late submission of T4 slips can be severe. So, you need to thoroughly understand the entire process of preparing and submitting the T4 - from collecting employee data to filing the form and summary with the CRA.

That's it in a nutshell. Now let's dive into the T4 slip and the information it contains.

What is a T4 Slip, and What Information Does it Contain?

A T4 is a statement of all forms of taxable income and benefits you paid your employees during the preceding calendar year.

What does Employee Income Include?

Employee income includes far more than salary or wages:

• vacation pay, commissions, bonuses, stock shares, and all other forms of financial compensation paid in the year
• a company contribution to an employee retirement plan (RRSP plan)
• for employees in service jobs: tips and gratuities
• meals, travel, parking, lodging, and housing
• benefits such as life and disability insurance, gym membership, childcare, use of a company car, internet, cell phones, etc.

Many forms of remuneration, direct and indirect, are taxable. It can be complicated, but the CRA website has a thorough guide to taxable benefits with examples.

Which Employees Require A T4 Form?

The Canada Revenue Agency (CRA) requires all Canadian businesses to submit a T4 slip to report employment income or benefits paid (or paid-in-kind) to their employees.

• Issue a T4 to any employee paid more than $500 in income and benefits in the calendar year.
• Do not issue a T4 to employees who worked only outside of Canada.

Preparing to File Your T4 Form and Summary

It's easier to prepare T4 forms when you have kept accurate payroll information throughout the year. For assistance in setting up a reliable record-keeping system, contact Zenally.

When it comes to filing T4 forms, preparation is key. Fortunately, filing T4s does not need to be a daunting task if you follow these steps:

• When hiring employees, obtain their full name, address, and social insurance number by having them complete the required TD1 and TD1AB forms when they start.
• Every pay period, record the amount of pay and benefits, along with the total EI, CPP, and tax deductions. Keeping a running total will help you be sure you don't over-deduct EI and CPP premiums.
• Record all the information required on the T4, referring to the CRA's Guide to Filing the T4 Slip and Summary.
• Prepare the T4 Summary, including:
• • total amounts paid to each employee during the year
  • total deductions and contributions made on behalf of the employee
  • remittances you sent to the CRA during the payroll (calendar) year
• Double-check all of your calculations. It's so much more painless if you file the correct information the first time rather than needing to submit amendments. You can use an online payroll calculator to help you calculate taxable benefits or overtime pay quickly and accurately.
• Once you've completed the calculation process, review your entries to verify that all numbers are correct before submitting your forms. If you have overpaid or underpaid CPP or EI withholdings for any employee in the year, expect a letter from the CRA demanding an explanation as to why. Best to get it correct before filing the forms.

How to File T4 Forms

After thoroughly completing and checking that all fields are accurate on each T4 form, you're ready to submit.

Small businesses can mail physical copies via post or submit them through their Business Account. As paper returns take longer to process, it's best to submit T4s online through your CRA business account.

If using a web form, you can file up to 100 slips. You'll be able to:

• file original, additional, amended and cancelled T4s from the CRA website
• calculate the totals
• save and import information
• print slips and summary
• submit securely online

The other option is to submit an XML file if you use third-party accounting software. The CRA website accepts XML files of up to 150 MB.

If you want help filing or amending a T4, refer to CRA's guide or call Electronic Media Processing Unit (EMPU) at 1-800-665-5164. Or, you can contact your accounting software provider's customer support team.

If you aren't using your CRA business account, sign into the web forms or Internet file transfer application using your payroll account number and web access code associated with your payroll account.

Before filing, check whether the totals you report on your T4 slips match the totals on your T4 summary. Be sure you correctly report your remittance totals. Discrepancies may delay processing times. Keep copies of the slips for your records.

Alternatively, do what many of our business clients do and let us help you. Give us the information, and we can file the returns for you.

What are the common mistakes employers make on the T4?

Common errors and omissions include:

Incorrect Employer Information

Be sure to provide your correct business number and the year for which the T4 is issued.

Incorrect Employee Information

Double-check employee information, such as their name, address and Social Insurance Number (SIN). An error can affect their CPP or QPP benefits. If you can't get an employee's SIN, make a note that you made a reasonable effort to obtain it.

Best practice: never pay anyone until they provide you with a valid social insurance number (SIN). This means you should be checking the validity of the SIN that each new employee provides.

Incorrect Employee Deductions

CRA does calculations on every employee's T4 to ensure sufficient CPP and EI have been withheld from the employee and remitted by the employer. Our office does these calculations on all the T4s we prepare to avoid the stress of being audited for under-remitting your payroll deductions.

Insurance

It's a mistake to omit employer-paid benefits like employee's life, critical illness, and accidental death and dismemberment (AD&D) insurance. Say you pay $20 for life insurance, $10 for critical illness and $5 for AD&D insurance coverage each month. If you've paid 100% of the premiums, you'd have to add $420 as a taxable benefit. If the employee has a deduction from their payroll for these amounts, then it's not taxable to the employee and, therefore not included on the employee's T4 slip.

Healthcare and wellness spending

If your business contributes to a private health plan (such as medical or dental plans) for employees, there's no taxable benefit. That said, benefits such as a gym membership or personal trainer are taxable.

Commission Income

Any commission paid as part of an employee's earnings must be included in the T4.

Workers Compensation

When you have completed the T4s remember to file the necessary form for the WCB if that's applicable in your industry.

What if You Make a Mistake? (T4 Amendments)

A business owner has many responsibilities and can make mistakes. If you realize the information on a T4 slip is incorrect, you can fix the error and file an amended form. Leave the other (correct) information as is. Use summary report type code A and T4 report type code A on the T4. If you need to cancel a slip, use the summary report type code A and slip report type code C.

Penalties

The government assesses fines and interest on late filings and filing errors.

Failure to file T4 and T4 summary on Time

The penalty is based on the number of T4s you filed late, with a minimum penalty of $100 and a maximum of $7,500.

Electronic filing

As of 2019, if you file more than 50 T4 slips in a calendar year, you must file the returns online, choosing either web forms or internet file transfer (XML). The penalty for not filing electronically depends on the number of T4s filed, ranging from $250 to $2,500. (Source: Canada Revenue Agency)

Failure to deduct

The CRA imposes a penalty of 10% of the CPP, EI and income tax that wasn't deducted. Suppose you already have a penalty amount payable for the same error in the same calendar year. In that case, the tax penalty increases to 20% of the amount that should have been deducted.

Failure to remit/Late remitting

If you deduct the amounts and don't remit them or send them in late, you'll pay a penalty of 3%-10% of the unremitted amount.

Failure to pay

Suppose you fail altogether to pay the right amount. In that case, the CRA will charge a penalty and possibly interest.

Also, you could be subject to criminal investigation and imprisonment for up to two years if there's evidence of fraud or intentional misrepresentation of the facts. It's in your best interests to be sure all information provided on a T4 is accurate and complete.

FAQs on Filing a T4 in Canada

Do I need to file T4 slips?

Canada Revenue Agency (CRA) requires all employers to complete and submit annual T4 statements for all employees. Employers must report remuneration, other income, taxable benefits, and deductions for each employee.

What is the deadline for filing T4s?

The last day of February every year is the deadline for submitting your employees' T4 forms. The CRA considers T4s to be on time if they are received or post-marked by February 28th (or February 29th in leap years). You must provide these slips to your employees by that same date so they can file their personal tax returns on time. If employees leave before year-end, provide them with their T4 slip when they go, but file it with all your other T4s at year-end.

Whom do I contact if I have questions about filing a T4 for my business in Canada?

Filing a T4 for your business in Canada can be intimidating if you're unfamiliar with the process. Fortunately, there are resources available to help you. The CRA website provides detailed information on T4 filing, payroll deductions, benefits, and other important topics. The CRA also offers a wide range of educational materials, such as tax guides and webinars.

If you're still in doubt, or if you simply find it all a bit overwhelming, contact Zenally. We'll help you straighten it out.

We're Here to Help

Does all this seem like a bit much? Would you like information about our T4 filing services?

Let Zenally answer your questions or set up a convenient system to make things easier. We've helped many small business owners solve their T4 woes.

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