The SMB's guide to Statements of Remuneration Paid (T4) and Statements of Investment Income (T5)
MRSB Chartered Accountant Colin Dawson goes over the basics for business owners this tax season
Now that the holidays are behind us, it is once again that magical time of year during which every employer must prepare statements of remuneration to his or her employees and statements of investment income to investors in order to properly disclose earnings for tax purposes to the Canada Revenue Agency (CRA). Sound like fun?
Not really, we know. So to assist those who might not have had to prepare these statements before, we have put together this guide, which should answer some of your questions about this oh-so exciting process.
Statement of Remuneration Paid (T4)
What is a T4?
CRA requires you to complete a T4 if an employee has received any of the following:
- Salary, wages (including pay in lieu of termination notice), tips or gratuities, bonuses, vacation pay, employment commisions, gross insurable earnings of self-employed fishers and all other remuneration you paid to employees during the year (visit the CRA website and search, "Box 14 Employment income" for a detailed list);
- Taxable benefits or allowances;
- Retiring allowances;
- Deductions you witheld 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)
An example of this form can be found at http://www.cra-arc.gc.ca/E/pbg/tf/t4/t4flat-13b.pdf
It is also important to note that the above link will provide a drop-down list of box codes that you can use to populate the T4 slip for any special situations. In addition, you can visit the CRA website (www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/menu-eng.html) in order to obtain information on the proper amount of CPP, EI and federal provincial income tax to deduct from each employee's pay to comply with the payroll deductions utilized by CRA.
When do you have to complete a T4?
You must complete T4 slips for individuals who received remuneration through the calendar year if you had to deduct Canada Pension Plan, Employment Insurance or income tax from the employee's earnings. In addition, the earnings of the employee must be greater than $500. The only exception to these two criteria exists when you provide taxable group term life insurance benefits to an employee. You always have to prepare a T4 slip for those employees even if the total of all earnings in a calendar year is $500 or less.
When do you issue a T4 to an employee?
T4 slips must be completed and distributed to all employees on or before February 28th of the year that follows the one in which they earned their remuneration. For example, a T4 for the 2013 calendar year must be completed and given to the employee no later than February 28th, 2014.
You may provide your employees with one of the following:
- Two copies of their T4, sent by mail to their last known address;
- Two copies of their T4, delivered in person; or
- One copy of their T4 distributed electronically (for example, by email) if you have received the employee's consent in writing or electronic format
If you do not provide this information, you can be subject to penalties. The penalty for failing to provide T4 slips to your employees by the above noted date is $25 per day for each missed employee with a minimum penalty of $100 and a maximum of $2,500. This makes it quite clear that non-compliance when filing T4s in a timely manner can be very expensive for any employer.
Issuing a T4 Information Return
Once you have completed your T4s, you will have to provide a summary of those information slips to CRA so that they can assess the earnings of your employees and determine if you have properly remitted all deductions and taxes required on their behalf.
Once you have been issued a payroll number (your business number with RT0001 following after it), you will be sent a T4 package which will have an example of this form in it. This form as well as the T4 information slips themselves can be printed from generic accounting software (Sage and QuickBooks). You must file information returns by Internet if you file more than 50 information returns (slips) for a calendar year.
Statement of Investment Income (T5)
What is a T5?
A statement of investment income (T5) information slip is required if you make a payment to a Canadian citizen who served as a nominee or agent for you.
These payments include:
- Eligible dividends and dividends other than eligible dividends (including most deemed dividends);
- Interest from the following:
- 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;
- Amounts that have to be included in a policyholder's income under section 12.2 of the Income Tax Act;
- 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
When do you have to issue a T5?
You do not have to prepare a T5 slip to report the following:
- Amounts paid to one recipient when the total amount for the year is less than $50;
- The interest part of a blended payment made by an individual;
- Interest one individual pays to another, such as interest paid on a private mortgage (this does not include investment dealers or brokers making payments for client accounts);
- Interest paid on loans from banks, financial houses, or other institutions whose usual business includes lending money;
- Capital dividends;
- Amounts paid or credited to non-residents of Canada, as described in Payments to Non-Residents of Canada;
- Interest on an investment contract accrued or payable during the year to a corporation, partnership, unit trust, or any trust of which a corporation or partnership is a beneficiary;
- An amount distributed from an eligible funeral arrangement, if the amount is a return of contributions only; or
- Interest paid to farmers under the AgriStability and AgriInvest programs, Fund 2 (these amounts are reported on an AGR-1 slip)
How do you issue a T5?
You can send electronic copies of an individual’s T5 slips, by Feb. 28th of the year after the calendar year in which the investment income was earned. Note that if you are going to send an electronic copy, you must have consent from the recipient to do so in writing or email before electronically distributing them.
If you are filing on paper, you will need to send CRA each T5 information slip, along with the T5 summary before the above mentioned deadline. In addition, you will have to send two copies of the T5 slip to the recipient by the same above noted deadline.
For your own records, you do not have to keep a copy of the T5 information slips that you issued, however, it is highly recommended that you do so. At the very least, you must keep the information used to prepare the slips in an accessible and readable format in case they are requested by CRA to support any T5 information slips previously filed.
So there you have it, everything you need to know about preparing T4 and T5 slips for your employees. Of course, don't hesitate to contact our Tax Services team if you have questions or need further guidance.