Why have I been asked by CRA to remit tax for a non-resident company I use?

By Randall Orser | Personal Income Tax

Tax concept TNThis kind of remittance usually occurs when you’re dealing with a franchisor to which you’re paying royalties or other monies, and the franchisor does not have a headquarters in Canada. However, any non-resident to whom you pay for services rendered in Canada may require you to withhold monies for taxes.

Every payer, including a non-resident payer, who makes a payment to a non-resident of Canada for services provided in Canada must withhold and remit an amount in accordance with the requirements under the Canadian Income Tax Act.

What Does The Act Mean By ‘Services Provided In Canada’?

Of course, the government doesn’t really define what they mean by the above term. Many of us have used outsourced talent in other countries to do certain things, from web development to consulting. In the end you have to use your best judgment as to whether or not the services you’re using fit into this term.

From what I found it appears Canada Revenue Agency is only concerned when it’s someone who comes into Canada to perform services. Or, it’s something that is an on-going process, such as the royalties mentioned earlier.

Some services this situation definitely applies would be speakers, actors, and other who come to Canada to perform. Or, you’re the director of a company in Canada and are paid directors fees.

Does this apply to a company you pay for hosting, or you’re doing ads on Facebook, etc.? Generally no. Many of these companies do have a presence in Canada, so you wouldn’t have to take off tax.

What Do I Have To Deduct And How Do I Remit It?

Whenever you pay someone who’s a non-resident, you must deduct 15% of the amount and remit that to the government. For example, you’re paying John Doe $5,000 for services provided, you must deduct $750.00 and remit that to the government.

You have to remit your non-resident tax deductions so that we receive them on or before the 15th day of the month following the month the amount was paid or credited to the non-resident. We consider the payment to be received on the date the payment is received at your Canadian financial institution or at the CRA. If the due date is a Saturday, Sunday, or Canadian public holiday, your remittance is due on the next business day.

You remit the non-resident tax through a payroll remittance account. Yes, the same one you’d use if you had employees. If you have a payroll remittance account now, add another account with RP0002 so you can keep the non-resident payments separate. If you don’t have one, then set up a new account, and if you don’t plan on having employees just use RP0001 for that account.

Every year you will have to file an NR4 slip for each non-resident you are paying along with an NR4 Summary. This applies whether it’s an individual, partnership, or corporation. You must give recipients their T4A-NR slips on or before the last day of February following the calendar year to which the slips apply. If you do not, you may be subject to a penalty.

Can A Non-Resident Apply For An Exemption?

If the non-resident can show that the withholding is more than their potential tax liability in Canada, either due to treaty protection or income and expenses, CRA may waive or reduce the withholding. Non-residents who want to ask for a waiver or reduction of withholding have to file a waiver application to the tax services office in the area where their services are to be provided. Non-residents working in the film industry should send their applications to the applicable Film Services Unit in the Toronto, Montréal or Vancouver tax services office.

Waiver applications have to be filed no later than 30 days before the period of service begins, or 30 days before the first payment for the related services. The non-resident has to give you a letter from us authorizing a waiver or reduction of the withholding amount. If you do not receive such a letter, you have to withhold the usual 15%.

There are two different kinds of waivers a Regulation 105 (most non-residents) and a Regulation 107 (for the film industry).

Whenever you are dealing with non-residents of Canada ensure that the monies you’re giving them aren’t going to fall within this non-resident tax situation. You can talk to your accountant/bookkeeper, or call Canada Revenue.

I have to renovate my home to accommodate my disability, is there a tax credit for that?

By Randall Orser | Personal Income Tax

Shower BenchThere comes a time when age may not allow you to get around as well as you used to, or something tragic happens that limits your mobility or ability to live in your current home. Whatever the reason you can write off expenses to make your home more accessible. These construction/renovation expenses are classed under medical expenses and deducted accordingly. These expenses are classified as medical expenses and claimed on Line 330. You may also claim these expenses for a dependent that lives with you.

Renovation or construction expenses

You can write off the amounts paid for changes to give a person access to (or greater mobility or functioning within) your home, when that person has severe and prolonged mobility impairment or lacks normal physical development.

Costs for renovating or altering an existing dwelling or the incremental costs in building your principal place of residence may be incurred. These costs can be claimed minus any related rebates such as for goods and services tax/harmonized sales tax (GST/HST).

Renovation or construction expenses have to be reasonable (as per Canada Revenue Agency) and meet the following conditions:

  • They would not typically be expected to increase the value of the dwelling; and
  • Persons who have normal physical development or who do not have severe and prolonged mobility impairment would not normally incur them.

Make sure you get a breakdown of the costs. Costs could include:

  • Buying and installing outdoor or indoor ramps if you cannot use stairs;
  • Enlarging halls and doorways to give you access to the various rooms of your dwelling; and
  • Lowering kitchen or bathroom cabinets so you can use them.

While these incurred costs to renovate or alter a dwelling to accommodate the use of a wheelchair may qualify as medical expenses under the conditions described above, these types of expenses related to other types of impairment may also qualify. In all cases, you must keep receipts and any other related documents to support your claim. Also, you must be able to show that your particular circumstances and the expenses incurred meet all of the conditions mentioned above.

Examples of common renovation or construction expenses that would generally not be considered eligible medical expenses, because they would be expected to increase the value of the dwelling or because they would normally be incurred by persons who have normal physical development or who do not have a severe and prolonged mobility impairment, include:

  • Hardwood flooring;
  • Hot tubs; and
  • Pools.

The types of renovations or alterations that could be eligible are not restricted to the above examples. Claims would be considered on a case-by-case basis. It is a question of fact whether your or a particular renovation or alteration will qualify. Of course, the onus is on your to prove that the conditions to qualify for this medical expense have been met.

A former employee refuses to give his SIN, what do I do?

By Randall Orser | Personal Income Tax

Businessman showing document or contract, isolatedI have actually run into this a couple of time over the past few years. You hire someone, they work for a few days and when you start asking for their Social Insurance Number (SIN) and other information, they stall and then quit before you can get the information. Now you have no information on someone who worked for a few days. Another scenario is you hire them, make it through the first payroll, then they happen to just quit, and you have no information other than their name and some information on their resume.

What do you do in this situation?

For the scenario where you haven’t paid the employee, then make sure you make note of their hours up to the day they quit. If the employee does come back, then you will have to issue a paycheque. However, make sure the employee fills out a Federal and Provincial TD1 before you give it to them. I’d even go as far as ensuring the SIN is a valid SIN by asking to see their SIN card. If you suspect they may be misleading you then you can call Service Canada to verify the SIN.

For the employee whom you’ve had one payroll, if they’ve only had that one payroll then you only have to worry about the T4. Now, you have no information on this person other than a name and maybe a phone number. You still have to file the T4 with what personal information you have. You’ll get a call from Canada Revenue Agency (CRA), and you’ll have to explain that the person quit before giving you any information, and they now refuse to give it to you. If you have a phone number and/or address for the employee give those to CRA.

The first thing you should do when hiring an employee is have them fill out a TD1, which gives you their basic information and the exemptions for determining taxes. Better is having some kind of employee information sheet that all new hires fill out. On this sheet you ask for their full legal name, address, phone number, email, SIN, birthdate, emergency contact information and any other pertinent information for your company/industry.

In either of the situations above: document, document, document. Make note of every conversation you have with the employee asking for this pertinent information, and every phone call you make to ask for it. Write down the date, time and what was said. Also, keep any written (including email) conversations you have with this employee. This way no one can come back and say you didn’t try to get this information out of the employee.

In the end, hiring an employee is a major act in any businesses life. Take it very seriously, as most of the laws are in the employees favour not the employers.

Oh, and one thing that I’ve read and truly believe is to ‘hire slow, and fire fast’!

Do I really have to make installment payments?

By Randall Orser | Personal Income Tax

Salvadanaio vuotoMany taxpayers hate giving their money early to the government, and so don’t make any kind of installments. Canada Revenue Agency (CRA) has realized this and now requires that taxpayers, and corporations, make installments on their various accounts. Generally, you have to make installments when your tax balance owing is more then $3,000 (except in Quebec where it’s $1,800) for the prior tax year.

Personal Taxes

You have to pay tax by installments for the same reason that most people have tax withheld from their income throughout the year. If you earn income that has no tax withheld or does not have enough tax withheld for more than one year, you may have to pay tax by installments. This can happen if you earn rental, investment, or self-employment income, certain pension payments, or income from more than one job. The $3,000 amount applies to your personal taxes, so if you owe more than that during the prior tax year, you will have to make installments.

If you are on pensions and you’re income is more than $20,000, then you should get something taken off each of the different pensions, such as OAS and CPP by calling Service Canada. For other pensions, call the pension office for that pension.

Also, if CRA has sent you an installment reminder letter, you must make the installments as per this letter, unless you believe your income will be less and you can arrange to make smaller, or no installments. If you believe your income will be more, then you can increase your installments based on what you believe will be your current income.

Business Taxes

Along with your personal taxes, your business related taxes, such as your GST/HST or corporate taxes might require installments. It’s usually only these two accounts that need to do installments, as they are the ones that would be filed annually.

GST/HST is only paid by installments when you are an annual filer. You pay installments when you’re prior year balance owing was over $3,000. Again, if you think you’re going to owe less you can reduce your installments. Or increase them, if you think you’ll owe more than the prior year.

For sole proprietorships, you must pay your installments in April, July, October, and January of the following year. This is where doing your books quarterly at a minimum comes in. You can figure out what you owe for that quarter and remit that as your installment payment. In the following year when you file your annual return you’ll end up owing nothing.

For GST/HST, Corporations would follow their fiscal year and pay on a quarterly basis. For example, if your year-end were August 31st, then you’d pay quarterly installments in September, December, March, and June.

For a corporation’s income taxes, the installments are due monthly by the end of the month. Penalties and interest will apply on any missed or late installments or if you made no installment payments at all.

What if you don’t make your installment payments as required?

CRA charges installment interest if all of the following conditions apply:

  • They send you an installment reminder in 2014 that shows an amount to pay;
  • You are required to make installment payments in 2014; and
  • You did not make installment payments, or you made payments that were late or less than the required amount.

CRA calculates the interest on each installment that you should have paid using the payment option that calculates the least amount of interest up to the balance due date. Then they calculate the interest on each installment you did pay for the year, starting from the later of the date the payment was made or January 1 up to the balance due date. They charge the difference between these two amounts if the difference is more than $25.

Installment interest is compounded daily at the prescribed interest rate.

You may have to pay a penalty if your installment payments are late or less than the required amount. CRA applies this penalty only if your installment interest charges for 2014 are more than $1,000.

To calculate the penalty, CRA determines which of the following amounts is higher:

  • $1,000; or
  • One-quarter of the installment interest that you would have had to pay if you had not made installment payments for 2014.

Then, they subtract the higher amount from your actual installment interest charges for 2014. Finally, they divide the difference by two and the result is your penalty.

Making sure that you pay your installment payments on time is very important these days. As well as knowing whether or not you have to make installment payments at all. If you’re unsure whether to make installment payments, talk to your accountant, bookkeeper or tax preparer.

Does my business have to follow International Financial Reporting Standards (IFRS)?

By Randall Orser | Small Business

a man hand graphCurrently Canadian business must follow Generally Accepted Accounting Principals or GAAP. You may have been hearing over the past couple of years talk about International Financial Reporting Standards or IFRS, and talk of businesses in Canada converting to this reporting standard. Do you as a small business have to convert out IFRS? That’s what we’ll talk about here.

What is IFRS?

International Financial Reporting Standards (IFRS) are a set of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements.

The IASB is an independent accounting standard-setting body, based in London. It consists of 15 members from nine countries, including the United States. The IASB began operations in 2001 when it succeeded the International Accounting Standards Committee. It is funded by contributions from major accounting firms, private financial institutions and industrial companies, central and development banks, national funding regimes, and other international and professional organizations throughout the world.

A financial statement should reflect a true and fair view of the business affairs of the organization. As statements are used by various constituents of the society / regulators, they need to reflect a true view of the financial position of the organization, and they are very helpful to check the financial position of the business for a specific period.

IFRS authorize three basic accounting models:

I. Current Cost Accounting, under Physical Capital Maintenance at all levels of inflation and deflation under the Historical Cost paradigm as well as the Capital Maintenance in Units of Constant Purchasing Power paradigm.

II. Financial Capital Maintenance in Nominal Monetary Units, i.e., globally implemented Historical cost accounting during low inflation and deflation only under the traditional Historical Cost paradigm.

III. Financial Capital Maintenance in Units of Constant Purchasing Power – CMUCPP – in terms of a Daily Consumer Price Index or daily rate at all levels of inflation and deflation under the Capital Maintenance in Units of Constant Purchasing Power paradigm.

Sounds complicated, doesn’t it. It is much more involved than GAAP for sure. It will take time for enterprises to convert to IFRS.

Currently, financial statements reflect, historically, a moment in time rather than what may, or may not, happen with the company. IFRS allows for the probable future economic benefit will flow to or from an entity to be recognized in the financial statements.

Do I have to implement IFRS in my business?

In Canada, The use of IFRS became a requirement for Canadian publicly accountable profit-oriented enterprises for financial periods beginning on or after 1 January 2011. This includes public companies and other “profit-oriented enterprises that are responsible to large or diverse groups of shareholders.”

So, unless you’re a public company you do not have to follow IFRS. This may change over time. Should I ever convert to IFRS? I would say no, not unless you have to for regulatory reasons or you wish to sometime in the future take your company public. Converting to IFRS can be a costly and time-consuming practice and requires the skills of an accountant who’s worked in the IFRS arena.

Is there a deduction for looking after an adult parent?

By Randall Orser | Personal Income Tax

heart shaped symbol as medical technology,clipping pathWe’re coming into an age when many of us are going to be looking after one, or both, of our parents. This can be a great expense for you, as many people haven’t saved enough for retirement, or made contingencies for when they cannot care for themselves (I have invested in home care insurance so I can be looked after when I’m unable). So, what is available to you when you’re looking after an elderly parent?

Amount for an eligible dependent

This amount applies if you don’t have a spouse, or common-law partner, you supported the dependent during the year, and you maintained a home that the dependent lived in. This has to be someone who you financially supported, so generally someone with little income. Only one person can make the claim for this amount during the year. The dependent can be your parent or grandparent by blood, marriage, common-law partnership, or adoption. They must live with you full time and not just be visiting that year.

Caregiver Amount

You may be able to claim the caregiver amount if, you (either alone or with another person) maintained a dwelling where you and one or more of your or your spouse’s or common-law partner’s parents/grandparents lived. They must dependent on you due to impairment in physical or mental functions. The parent or grandparent has to have been born in 1948 or earlier. This amount is more geared towards someone who is helping his or her parent/grandparent due to them becoming dependent before getting elderly (under 65 during the year).

Family Caregiver Amount

If you can claim the caregiver amount then you may be able to claim the Family Caregiver Amount too. This amount can be claimed when your parent is dependent on you because of impairment in physical or mental functions. You must have a signed statement from a medical practitioner showing when the impairment began and what the duration of the impairment is expected to be. You can claim the FCA for more than one eligible dependent.

Allowable amount of medical expenses for other dependents

You can claim those eligible medical expenses you’ve paid on behalf of a parent who depended upon you for support. Some of those expenses can include: hearing aids, walking aids, wheelchairs, vehicle modifications, and more. You must have paid for these expenses yourself, not your parent.

You still have to use the 3% deduction as you would for medical expenses for yourself, using the parent’s income.

Also, there are certain medical expenses you can claim only with a Disability Tax Credit Certificate. You must make sure that one has been filed on the parent’s behalf prior to claiming the medical expenses.

As most tax returns are electronically filed today, CRA will request to see the receipts when the amount is high. So, ensure you have receipts for the medical expenses you claim. If you do get a request for medical receipts, please make copies of them all just in case they get lost.

Attendant care or care in an establishment claimed as medical expenses

You can claim the amounts paid for attendant care expenses as medical expenses, or as a disability supports deduction. However, the total you claim cannot be more than the total amount paid.

You may claim full-time attendant care services if you are eligible for the disability tax credit, or a medical practitioner certifies in writing that these services are necessary and that your impairment is likely to be indefinite. You can claim for part-time attendant care services only if your parent is eligible for the disability tax credit (DTC).

Disability amount transferred from a dependent

You may have a dependent that is able to claim the disability amount, and that person may not need to claim all or part of that amount on his or her income tax and benefit return. Under certain conditions, your dependent may be able to transfer this amount to you. If your dependent is eligible for the disability tax credit (DTC), you may be able to claim all or part of his disability amount on your tax return.

As you can see there are many ways you can claim a dependent parent. It’s best to talk to your parent, their medical practitioner, and your tax professional to ensure that you are getting the best for your parent and yourself.

Why you should take some salary as a business owner.

By Randall Orser | Personal Income Tax

smiling young man counting coin in poggy bankWhile you can’t actually take a salary as a sole-proprietorship or partnership you can take one as an owner of a corporation. However, we can still look at your net income as a salary for the proprietorship or partnership, and you should not just write everything off so you don’t pay tax. You need to show some kind of an income for various purposes, such as loans, mortgages, etc. The taxman also likes to see some income eventually, as they may start to wonder how you support yourself.

Let’s talk about the taxman first.

While there’s no written rule about net income and when Canada Revenue Agency (CRA) will determine you’re not earning enough, you need to look at your net income over the years and see where it is. If you’re having continuous losses, as a proprietorship/partnership, CRA may start to wonder why you’re in business the first place. Plus, they may wonder how you live at all.

You may find yourself in the middle of a net-worth audit, where CRA looks at your income, what you own, what you owe, and how you survive financially. If there is a reason you do not need your business net income, such as other income, pensions, etc. you will have to prove that.

For the corporation owner, while your net income form the business doesn’t matter as much, CRA may look at what you take as income from the corporation. And, again, you could find yourself in a net-worth audit situation, if you aren’t taking any income. However, if you have a large shareholder loan (monies you’ve lent the corporation), and you’re paying this down instead of taking a salary, that will help with CRA.

Everyone Else

Sadly, in the world of finance, not having an income is detrimental to getting any kind of loan. Banks do not understand being self-employed, and only want to see T4 income. That’s what they understand. If you are a proprietorship or partnership, you’ll need to be showing some kind of net income. How much all depends on what you’re going for, mortgage, car loan, etc.

For the corporation owner, you need to be taking some kind of a salary if you have a mortgage or other loans. As I said above the banks seem to only understand T4 income, so it’s best to take some kind of salary. The banks will not look at the monies you take out to repay your shareholder loan, as that’s money you’re owed by the corporation.

Yourself

Let’s face it, in the end it’s all about us. You’re in business to make money and to earn a living, so your business needs to make money too. You need to be able to support yourself from your business earnings, without dragging the company into debt. This applies whether you’re a sole proprietorship/partnership or a corporation.

For the corporation owner, you can still claim an income even if the company cannot pay you outright. All you have to do is declare an income and pay the appropriate payroll deductions and you are good to go. Once the company has money you can pay this money to yourself. However, you must ensure you have the funds to pay the payroll deductions each month.

While you may want to not have to pay any taxes and take all the deductions you can, in the end, you can hurt yourself by not making money or taking a salary from your business. You need to live and support yourself.

Pooled Registered Pension Plan (PRPP)

By Randall Orser | Personal Income Tax

Digital Piggybank VisualizationA pooled registered pension plan (PRPP) is a new, accessible, straightforward retirement savings option for employed and self-employed individuals who do not have access to a workplace pension plan or where a workplace pension plan does not exist.

A PRPP enables its members to benefit from lower administration costs that result from participating in a large, pooled pension plan. It’s also portable, so it moves with its members from job to job.

Since the investment options within a PRPP are similar to those for other registered pension plans, its members can benefit from greater flexibility in managing their savings and meeting their retirement objectives.

Eligibility

Starting in 2013 those persons with a valid Canadian Social Insurance Number are able to participate in a PRPP. If you wish to participate you must meet one of the following criteria:

  • Employed or self-employed in the Northwest Territories, Nunavut or Yukon;
  • Work in a federally regulated business or industry for an employer who chooses to participate in a PRPP; or
  • Live in a province that has the required provincial standards legislation in place.

Participation

You can enroll in a PRPP by your employer (if the employer so chooses) or a PRPP administrator (bank or insurance company). Your PRPP is created under your SIN, and you choose the amounts to be contributed from your paycheques. You and your employer contributions, including any lump-sum contributions, are pooled together and credited to the your account.

The member must file an income tax and benefit return each year to participate in the PRPP since the amount that can be contributed depends on the income reported on their return. The total amount that a member or employer can contribute without tax implications depends on the member’s RRSP deduction limit. This is also known as your ‘contribution room’.

Contributions

Any employer PRPP contributions, combined with your contributions to your PRPP, RRSP, and spouse or common-law partner’s RRSP, that are above the RRSP deduction limit may be considered excess contributions. These excess contributions may be subject to a tax of 1% per month for every month they are left in the account, therefore it is important for members to know how much unused contribution room they have available in a given tax year.

Any contributions made to a PRPP that are not deducted on your income tax and benefit return in a given year are referred to as Unused RRSP contributions. If you withdraw the unused contributions from his or her PRPP, an offsetting deduction may be claimed.

You can make voluntary contributions to their PRPP between January 1 in a given year and 60 days into the following year, up until the end of the year in which they turn 71. Your contributions are deductible on your income tax and benefit return, but the deduction must not exceed the difference between their RRSP deduction limit and the employer’s contributions to their PRPP.

Any voluntary contributions made by your employer are not included in the your income, and they are not deductible on the your income tax and benefit return.

Withdrawals

To ensure that the funds within a PRPP are available for your retirement purposes as intended, the Pooled Registered Pension Plans Act (PRPPA) limits the distributions (withdrawals) that a member can make. As with limitations in other registered pension plans (RPPs), the funds in a PRPP are generally “locked-in” and cannot be withdrawn until the member retires from employment.

There are certain life events that allow you to withdraw funds from a PRPP. Your death, you have a financially dependent child or grandchild, or the breakdown of your marriage or common-law partnership.

In the case of the your death and you had a spouse or common-law partner, your spouse or common-law partner will become a successor PRPP member of the plan, taking over ownership and future direction of the deceased PRPP account. The successor member is then entitled to receive a lump-sum payment from the PRPP or can choose to transfer the funds directly, on a tax-deferred basis, into another investment plan such as another PRPP, an RRSP, RRIF or RPP.

In the case of a PRPP member who had a financially dependent child or grandchild, the child or grandchild is deemed to be a qualifying survivor, and is also eligible to receive the funds from the deceased’s member’s PRPP account. Since payments made out of the PRPP are taxable, the child or grandchild would include the amount received as income on his or her income tax and benefit return.

Your spouse or common-law partner or former spouse or common-law partner who is entitled to the funds from the your PRPP account as a result of a breakdown of the marriage or common-law partnership, may transfer the lump sum amount to: another registered plan such as another PRPP, an RRSP, RRIF or RPP of the individual; or purchase a qualifying annuity.

When you receive an amount from a PRPP, you must include it on your income tax and benefit return in the year you receive it. Since benefits such as old age security (OAS) or guaranteed income supplements (GIS) are calculated on the your income reported on your income tax and benefit return each year, these benefits may be reduced accordingly.

Investment options

The investment options available for PRPPs are similar to those available for other registered plans, but there are some restrictions. The Income Tax Act does limit the type of investments that can be held in a PRPP to prevent tax avoidance planning. For example, you cannot hold restricted investments in a PRPP such as your mortgage or debts, and shares of companies in which you have a significant interest.

A PRPP is another way for Canadians to invest for their retirement and with the contributions coming off each cheque it makes it easier to contribute. PRPPs are also similar in many ways to an RRSP. You will want to check your Notice of Assessment from the prior tax year to see how much you can contribute to your PRPP. If you’re already contributing to an RRSP you’ll want to figure out how much is that and contribute to your PRPP accordingly.

I had my first employee last year, what do I have to do now?

By Randall Orser | Personal Income Tax

payroll summaryYou took the plunge last year and hired your first employee. You’ve been diligent in getting his paycheques out and ensuring the monthly payroll remittance was paid on time. Now we’re into a new calendar year, so what’s next? You have to file the T4s for your company based on what you paid the employee last year.

Generally, you need to complete a T4 slip if you are an employer and you paid your employees’ employment income, commissions, taxable allowances and benefits, fishing income, or any other remuneration. If you had someone do some odd jobs for you and it was less than $500 for the year, then you won’t have to file a T4.

Guidelines for completing T4 slips

  • Complete the slips clearly.
  • Report, in dollars and cents, all amounts you paid during the year, except pension adjustment amounts, which are reported in dollars only.
  • Report all amounts in Canadian dollars, even if they were paid in another currency.
  • Do not enter hyphens or dashes between numbers or names.
  • Do not enter the dollar sign ($).
  • Do not show negative dollar amounts on slips; to make changes to previous years, send us amended slips for the years in question.
  • If you do not have to enter an amount in a box, do not enter “nil” – leave the box blank.
  • Do not change the headings of any of the boxes.

Distributing T4s to Employees

You must give employees their T4 slips on or before the last day of February following the calendar year to which the slips apply. If you do not, you may be subject to a penalty. The penalty for failing to distribute T4 slips to recipients is $25 per day for each such failure with a minimum penalty of $100 and a maximum of $2,500.

Give the employee one of the following:

  • Two copies, sent by mail to their last known address;
  • Two copies, delivered in person; or
    • One copy distributed electronically (for example, by email) if you have received the employee’s consent in writing or electronic format.

I suggest that you print the two T4 slips that you have to give to each employee on one sheet. For security purposes, do not print your payroll account number (box 54) on these copies. If T4 slips are returned as undeliverable, I suggest that you retain the slips with the employee’s file.

T4 Summary

You also have to file a T4 Summary, even if it’s only one slip. The Summary states the total employment income, Canada Pension Plan (employee & employer), Employment Insurance (employee & employer) and income tax deducted from the employee during the calendar year.

You also state what you remitted during the year to Canada Revenue Agency. If there is a difference between what you remitted and what the actual deductions were, then you must pay the balance owing when you file the T4 and summary. You will more than likely get a penalty and interest for not filing during the year properly.

How do I file with Canada Revenue Agency?

Canada Revenue Agency does prefer you to file your T4 and summary electronically. If you have over 50 slips then you must file electronically.

Sage 50 and QuickBooks allow you to file via their software; however, you must be on the latest version and subscribed to their payroll updates. This is the best way if you have more 5 employees. Your bookkeeper or accountant can also help with filing your T4s.

If you’re using a payroll service, such as Ceridian or ADP then they’ll file them for you.

If you just have a few slips then you can use CRA’s Web Forms service. I wouldn’t do more than 5 using this feature, as it can be pretty tedious.

Once the year is done you now have to give your employee his/her T4 and then file the same with CRA. It’s always a good idea to get this done as soon as you can after the calendar year ends; though not too soon in case there are adjustments you need to make for taxable benefits and such.

What is a Registered Disability Savings Plan (RDSP)?

By Randall Orser | Personal Income Tax

Happy cartoon smiling blonde girl in magenta wheelchair moving fLately there has been talk about something called a Registered Disability Savings Plan, or RDSP for short. An RDSP is a savings plan to help parents and others save for the long-term financial security of a person who is eligible for the disability tax credit; this person would be the beneficiary of the RDSP.

Contributions to an RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59. Contributions that are withdrawn are not included in income for the beneficiary when they are paid out of an RDSP. However, the Canada disability savings grant, the Canada disability savings bond, and investment income earned in the plan are included in the beneficiary’s income for tax purposes when they are paid out of the RDSP. Of course, the idea being that they are in a lower income tax bracket so won’t get taxed as high as the contributor.

Who can become a beneficiary of an RDSP?

You can designate an individual as beneficiary if the individual:

  • Is eligible for the disability amount;
  • Has a valid social insurance number (SIN);
  • Is a resident in Canada when the plan is entered into; and
  • Is under the age of 60. The age limit does not apply when a beneficiary’s RDSP is opened as a result of a transfer from the beneficiary’s former RDSP.

A beneficiary can only have one RDSP at any given time, although this RDSP can have several plan holders throughout its existence, and it can have more than one plan holder at any given time. Anyone can contribute to an RDSP with the written permission of the plan holder.

How do you open an RDSP?

To open an RDSP, a person who qualifies to be a holder of the plan must contact a participating financial institution that offers RDSPs. These financial institutions are known as issuers. The plan holder is the person who opens the RDSP and makes or authorizes contributions on behalf of the beneficiary.

Who can open an RDSP?

If the beneficiary has reached the age of majority and is legally able to enter into a contract, then an RDSP can be established for such a beneficiary by the beneficiary and/or the legal parent who is, at the time the plan is established, a holder of a pre-existing RDSP of the beneficiary.

Another qualified person can open an RDSP for the individual and become a holder. Another qualified person is: a guardian, tutor, or curator of the beneficiary, or an individual who is legally authorized to act for the beneficiary; or a public department, agency, or institution that is legally authorized to act for the beneficiary.

In addition, an individual who is eligible to be a beneficiary of an RDSP, (but for whom a plan has not yet been established) may have reached the age of majority but may not be legally able to enter into a contract.

If, after reasonable inquiry, it is the opinion of a financial institution that offers RDSPs (RDSP issuer), that an individual’s ability to enter into a contract is in doubt because of a mental impairment a “qualifying family member” can become a holder. A qualifying family member includes a spouse, common-law partner, or parent of an individual. The spouse or common-law partner is not eligible for this measure if they are living apart from the beneficiary due to a breakdown in their marriage or partnership.

What types of payments are made from an RDSP?

Only the beneficiary or the beneficiary’s legal representative (on his or her behalf) will be permitted to receive payments from the RDSP.

There are three types of payments that can be made from an RDSP:

  • Payments referred to as disability assistance payments (DAPs);
  • Repayments of grants and bonds to the Government; and
  • Transfers of all property from the beneficiary’s current RDSP to a new RDSP of the beneficiary.

Of these three types of payments, only the DAPs are taxable. Disability assistance payments (DAPs) are any payments made from the plan to the beneficiary or to the beneficiary’s estate.

How are payments from an RDSP reported?

The grants, bonds and investment income earned in the plan are included in the beneficiary’s income for tax purposes when they are paid out of the RDSP. RDSP issuers report the taxable part of the payments from the plan in box 131, located in the “Other information” area of a T4A slip and send two copies of the slip to the beneficiary or the beneficiary’s legal representative. The beneficiary has to include this amount as income on line 125 of his or her tax return for the year in which he or she receives it.

What happens if the beneficiary dies?

The RDSP must be closed and all amounts remaining in the plan must be paid out to the beneficiary’s estate and the plan terminated, by December 31 following the calendar year in which the beneficiary dies. Any funds remaining in the RDSP, after any required repayment of government grants and bonds will be paid to the estate. If a DAP had been made and the beneficiary is deceased, the taxable part of the DAP must be included in the income of the beneficiary’s estate in the tax year in which the payment is made.

Registered Disability Savings Plan (RDSP) is a great way to save for the future of someone who is severely physically or mentally challenged. It allows the holder (parents usually) to be able to save for the future of their child, and knowing that after their passing the funds will be there to look after the child.