It’s that time of the year again. Employers have to prepare and file T4’s, and other reporting slips, with Canada Revenue Agency by the end of February each year to be compliant. Employees, on the other hand wish to receive their T4’s as soon as possible, because if there is a chance to file their income tax returns early and get a hefty tax refund – they can use the cash to pay off some bills.
Somehow, by splitting this difference between employee wants (January 1st) and employer deadlines (February 29th) .. middlemen such as myself come into play usually by the beginning of February!
So – here I am, and I have been accumulating payroll information from my clients .. I have all the software .. I’ve ordered and received all the blonk forms .. and now it’s officially “T4 Season” for me. While I will get a lot out before the 15th of February .. most of my client’s companies have to file a small amount of T4’s – for the owner/shareholder/employees only – and as such, are not in that much of a big rush as some other clients. I tend to file about 80% of my client’s Summaries and Supplementaries within the last week or even days of February!
My T4 Season is not just for T4’s
I say “T4” season, but this includes other slips too .. T4A’s and T5’s. There are more slips, but over the past few years anyway, these are the only 3 that I prepare .. as well as the applicable summaries. In the meanwhile, I thought I would post some facts about this necessary evil (T4 preparation and filing etc).
The CPP Rate for employees for 2007 is the same as it was for the past 5 years …. 4.95%. There is a maximum “pensionable” amount that is subject to CPP which for 2007 is $43,700. For 2008 this maximum pensionable amount is raised to $44,900. Everybody gets a basic exemption of $3,500 deducted from this maximum amount, leaving the contributory earning amount that is subject to the CPP rate. If an employee only works for 9 months, then the basic exemption is prorated 9/12.
EG: If an employee’s annual wage is $35,000.00 … CPP would be calculated as follows:
35000-3500=31500 x 4.95% = $1,559.25
EG: If an employee’s annual wage is $55,000.00 … CPP would be calculated as follows:
max 43700-3500=40200 x 4.95% = $1,989.90 which is the maximum employee contribution for 2007.
Whatever is withheld from the employees each month is matched by the employer (CPP x 1) and is remitted to Canada Revenue by the 15th of the following month (CPP x 2)
If you are self-employed – you are basically the employee and employer, and will ended up paying both share (CPP x 2) on your tax return.
The EI Rate for employees for 2007 has gone down from the previous year, and has been declining consistently since 1996 .. it’s at 1.80% for 2007 and reduces again to 1.73% for 2008. There is a maximum “insurable” amount that is subject to EI which for 2007 is $40,000. For 2008 this maximum pensionable amount is raised to $41,100. There is no exemption amount or prorated amount when calculating tax the deduction – although smaller amounts might be refunded when you file an income tax return.
EG: If an employee’s annual wage is $35,000.00 … EI would be calculated as follows:
35000 x 1.80% = $630.00
EG: If an employee’s annual wage is $55,000.00 … EI would be calculated as follows:
max 40.000 x 1.80% = $720.00 which is the maximum employee contribution for 2007.
Whatever is withheld from the employees each month is matched by the employer 140% (EI x 1.4) and is remitted to Canada Revenue by the 15th of the following month (EI x 2.4)
If you are self-employed – you do not deduct EI. If you are an employee of a firm where you own more than 40% you also do not have to deduct EI. There are other situations, but I will not go into it now.
Now .. I will copy/paste information that might be of use obtained from Canada Revenue Agency’s site
T4 information return
A T4 iinformation return consists of T4 slips and the related T4 Summary.
You have to file by the last day of February following the calendar year to which the information return applies. If the last day of February is a Saturday or Sunday, your return is due the next business day. If you need to file early due to bankruptcy or if your business stops operating, you are required to file within 30 days.
If you file more than 500 various information slips, you must file the return electronically in extensible mark-up language (XML) on electronic media (DVD, CD, or diskette).
When to complete a T4 slip
You have to complete a T4 slip to report the following:
* salary, wages (including pay in lieu of termination notice), tips or gratuities, bonuses, vacation pay, employment commissions, gross and insurable earnings of self-employed fishers, and all other remuneration you paid to employees during the year;
* taxable benefits or allowances;
* deductions you withheld during the year; and
* pension adjustment (PA) amounts for employees who accrued a benefit for the year under your registered pension plan (RPP) or deferred profit sharing plan (DPSP).
You have to report income on a T4 slip for the year during which it was paid, regardless of when the services are performed or rendered. For example, if a pay cheque dated in January covers income earned in the last days of December, report the income on the T4 slip for the year that starts in January.
You have to complete T4 slips for all individuals who received remuneration from you during the year if:
you had to deduct CPP/QPP contributions, EI premiums, PPIP premiums, or income tax from the remuneration; or
the remuneration was more than $500.
If you provide employees with taxable group term life insurance benefits, you always have to prepare T4 slips, even if the total of all remuneration paid in the calendar year is less than $500.
If you provide former employees or retirees with taxable group term life insurance benefits you need to prepare a T4A slip.
The following types of income are not reported on a T4 slip.
* If you paid pensions, retiring allowances, lump-sum payments, annuities, or other income (including amounts paid to a proprietor or partner of an unincorporated business), see Completing the T4A slip and summary.
* If you paid fees (except for director fees), commissions, or other amounts to a non-resident for services rendered in Canada, other than employment situations, see Payments to Non-Residents for Services Provided in Canada for information about completing a T4A-NR return.
* If you are an employer with construction as your primary business activity, and you paid amounts to subcontractors for goods and services rendered in connection with construction activities, complete the Form T5018, Statement of Contract Payments.
* If you paid amounts from a retirement compensation agreement, see the Retirement Compensation Arrangements Guide for information about completing a T4A-RCA return.
When to complete a T4A slip
Are you a payer, such as an employer, a trustee, an estate executor (or liquidator), an administrator, or a corporate director, and you paid any of the following types of income? If so, you have to complete a T4A slip if the total of all payments in the calendar year was more than $500 or you deducted tax from a payment.
* pension or superannuation;
* lump-sum payments;
* self-employed commissions;
* retiring allowances;
* patronage allocations;
* RESP accumulated income payments;
* RESP educational assistance payments;
* fees or other amounts for services; or
* other income such as research grants, certain payments under a wage-loss replacement plan, death benefits, and certain benefits paid to partnerships or shareholders.
You have to prepare a T4A slip if you provided group term life insurance taxable benefits for former employees, or retirees, even if the total of all benefits paid in the calendar year is $500 or less.
You have to prepare a T4A slip if you are the administrator or trustee of a multi-employer plan and you provided taxable benefits under the plan to employees, former employees, or retirees, if the total of all benefits paid exceeds $25.
For a complete list of the types of other income for which a T4A slip is required, see Box 28 – Other income.
The term recipient refers to the beneficiary of a payment and includes employees, former employees, retired persons, and shareholders.
When do you have to prepare a T5 slip?
If you make certain payments to a resident of Canada, or if you receive certain payments as a nominee or agent for a person resident in Canada, you have to prepare a T5 slip.
These payments include:
eligible dividends and dividends other than eligible dividends (including most deemed dividends);
– a fully registered bond or debenture;
– money loaned to or on deposit with, or property of any kind placed with, a corporation, association, organization, or institution;
– an account with an investment dealer or broker;
– an insurance policy or annuity contract (when the interest is paid by an insurer); or
– an amount owing as compensation for expropriated property;
certain amounts distributed from an eligible funeral arrangement (see Box 14 – Other income from Canadian sources);
amounts that have to be included in a policyholder’s income under section 12.2;
royalties from the use of a work, an invention, or a right to take natural resources; or
blended payments of income and capital made by a corporation, association, organization, or institution. For more information, see Blended payments.
For investment contracts acquired before 1990, you have to report accrued interest every three years, unless the recipient has elected to report annually. This calculation is based on the calendar year. For more information, see Contracts acquired after November 12, 1981, and before 1990.
For investment contracts acquired after 1989, you have to report accrued interest every year. Base this calculation on the date the investment contract was issued. We will consider an investment contract acquired before 1990 to be a new contract acquired after 1989 if certain material changes were made after 1989. For more information, see IT448, Dispositions – Changes in Terms of Securities, and its Special Release.
We explain special accrual rules for indexed debt obligations in Indexed debt obligations issued after October 16, 1991.
Forms and publications
T5 Guide – Return of Investment Income (T4015)
T5, Statement of Investment Income
IT448, Dispositions – Changes in Terms of Securities, and its Special Release