But then you will have to deal with ‘work in progress’…
That has been the way for a long time and really messy. Because the other business may not want to reissue t4a amended.
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Section 9 of the Income Tax Act would disagree with that.
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It appears to me that neither this re-assessment nor question would have arisen had the 2018 tax return been filed correctly the first time, with the proper December 2018 income and expenses reported on T2125.
1 Like
Please find attached the slide deck and transcript from the CRA Webinar of 2019-02-20, T4A, Interbusiness services.
Please refer to the instructions re how to report T4A subcontract income (aka interbusiness income) as a proprietor and as a corporation.
The examples provided in this webinar clearly indicate that the sub-contract income should be reported on a cash basis. The inference is that the independent income should be reported as normal, on an accrual basis.
In addition, a reconciliation report between cash and accrual basis T4A received and T4A expenses paid should be maintained.
SLIDES
CRA Webinar, 2019-02-20, T4A, Interbusiness Services, cra-feb20-19-eng-slides.pdf (737.6 KB)
CRA Webinar, 2019-02-20, T4A, Interbusiness Services, cra-feb20-19-fra-slides.pdf (737.9 KB)
TRANSCRIPT
CRA Webinar, 2019-02-20, T4A, Transcript…pdf (60.8 KB)
The question of when, why, and how to issue a T4A is an ongoing saga.
It is my recollection that there were massive changes to boxes and slips re T4 vs T4A on or about 2009 or 2010. I could not find the exact reference to be sure of the dates.
Since then there seems to have been some degree of confusion about when, why, how, and with what penalties do T4A slips need to be issued for “interbusiness” or “subcontractor” services.
Please find below some additional opinion or position links on this matter.
Cadesky Tax
T4A: The Compliance Conundrum of Fees Paid for Services
http://cadesky.tax/tt-19-05/
Sloan Group
Making Sense of Your T4A Slips
https://sloangroup.ca/making-sense-of-your-t4a-slips/
CPA Canada
Payment for services: CRA policy unchanged now
https://www.cpacanada.ca/en/business-and-accounting-resources/taxation/blog/2019/may/payments-for-services-cra-policy
Bookkeeping Essentials
CRA Subcontracting Reporting Requirements
Intuit TurboTax Community
How do I reconcile differences between the T4A box 48 and my revenues invoiced
Thanks for all of that. It seems like this is still a work in progress. I will go with what the senior CRA rep suggested, which is hope that my client amends the T4A, and if not, just report the income for 2018 as entered on the T4A, and enter all of my expenses against the remaining income for 2019. This gives me a bit of a net loss, since I was pushed into a higher bracket in 2018 and will have much less income in 2019, but so it goes…
The bottom line is that they should not have issued a T4A on UNpaid invoices, but did, so it’s hard to undo at this stage.
And thus ignoring any advice given here, and ignoring the Income Tax Act. Many people make the mistake that CRA is there to INTERPRET the ITA. However, their sole function is to ADMINISTER the ITA, As to interpreting the ITA, the courts have the final say, but interpreting is as much practioners as it is CRA. CRA opinion, bulletins and circulars are not law.
T4A slips can be a real PITA when you are dealing with individuals and the matching program. I have found that matching does not care that the income my have already been recorded in another year or if the slip is issued under the wrong person. (ie issued in the names of the individual rather than the corporation) They are only concerned that the slip is reflected on the return.
In those cases, I always make sure the T4A slip is reflected on the business statement and will add a expense line to offset the income if required. For instance, if I had accrued the income in the previous year and received a T4A slip for it the current year, I would link the T4A slip in the current year and then expense out the portion that was accrued in the previous year completing the paper trail resulting in the proper income in each year and no reassessment from matching that I would have to deal with.
@lylerobinson
@james1
@BertMulderCGA
@lylerobinson
Since you seem reluctant to force the issue of fixing the T4A, I would would cover my bases with documentation.
I would send a document to your client
- to request to delete T4A 2018 and to reissue as T4A 2019 per CRA.
- to confirm the firm to which you provided subcontract services has refused to do so.
- to provide a reconciliation worksheet for your invoice and payments.
I would ensure that I had proof of delivery.
Eventually your client may be caught and may be subject to a full audit. You want to cover yourself in the event that you become the subject to audit if that happens.
Eventually you will need to decide if you wish to continue subcontracting to accounting firms which disregard CRA compliance requirements. Clearly you are not ready to that at this point.
@james1
I am with you. T4A can be a real PITA. T1 matching only care about slips on files and not about the correctness of slip preparation or compliance.
@BertMulderCGA
You are absolutely correct that we are hired to administer CRA, ITA, and ETA laws, regulations, and administrative policies and not interpret them. However it is the rare few bookkeeping and CPA firms that don’t cut corners and turn a blind to mistakes. Often speed, labor costs, and client profitability are their prime concerns. As a sub-contractor all one can do is turn over the work to the best of your abilities and then let the partner or supervisor have the final say. I am happy hear that you firmly adhere to compliance.
Oh My
As I already noted above “neither this re-assessment nor question would have arisen had the 2018 tax return been filed correctly the first time, with the proper December 2018 income and expenses reported on T2125.”
At this stage, forget about that historical T4A - its issued, done, dusted, and irrelevant.
If it gets cancelled and re-issued, then it would have to be reported and explained TWICE.
Why would anybody want to do that?
Please everyone, take a deep breath and lets all just follow Section 9 of the Income Tax Act, properly…
@lylerobinson Assembling the correct data into the format and content required for a T2125 for a particular taxation year to agree with section 9 of the income tax act does require different content to the data that you indicated that you applied above. (I believe that this was first effectively mentioned by helga_spence above in response to your post).
Of course, notwithstanding anything pertinent said on this topic above, and assuming this subcontract work was not in connection with the construction industry, when form T5018 applies, reading from publication RC4157, CRA’s guide to completing the T$ summary/slips, page 9, under the heading 'Box 28 - Other Income - Enter the following types of payments in box 28… 3. Any fees or other amounts paid to Canadian residents
for services from which you deducted income tax –
Report any other amount from which you have
deducted income tax and which you do not have to
report elsewhere on a T4A or other information return.
No where else in this guide is reference made to other payments in the nature of self-employment, other than self-employed commission income, in which case box 20 applies.
Thus, according to CRA’s own interpretation in this guide, if you are not in the construction industry (T5018), and make payments to subcontractors, there is no requirement to complete a T4A slip UNLESS you made witholdings from such payment… so far as to the PAYOR’s responsibility.
The pertinent legislation to reporting this income on the T1 return, which is the responsibility of the RECIPIENT, is found in ITA 9(1):
9(1) Income
Subject to this Part, a taxpayer’s income for a taxation year from a [business] or [property] is the taxpayer’s profit from that [business] or [property] for the year.
The computation of income, and thus profit, is subject to six ‘guiding principles’, as set out by the Supreme Court of Canada, and according to these principles, a taxpayer is 'free to adopt any method no inconsistent with the provisions of the Act, legal principles and well-accepted business principles, though the method must provide an accurate picture of the taxpayer’s income position. GAAP dictates business income must be reported on the accrual basis, even though I was unable to find ‘accrual’ in the ITA in this connection.
The same guide under the heading “Is this guide for you” states:
You have to fill out the T4A slip, Statement of Pension,
Retirement, Annuity, and Other Income, if you made any of
the payments listed above and one of the following applies:
■ the total of all payments in the calendar year was more
than $500
■ you deducted tax from any payment
So technically if the payments are more than $500 in the year you would have to file a T4A for payments for services.
CRA has not been enforcing as far as I know.
No, if payments of the specific types listed for each of the boxes are more than $500 (in the aggregate), or any payment from which tax witholding is made.
Use this guide if you are a payer, such as an employer,
a trustee, an estate executor (or liquidator), an
administrator, or a corporate director, and you pay any
of the following types of income:
■ pension or superannuation
■ lump-sum payments
■ self-employed commissions
■ annuities
■ patronage allocations
■ registered education savings plan (RESP) accumulated
income payments
■ RESP educational assistance payments
■ fees or other amounts for services
■ income replacement payments made under the Veterans
Well-being Act
■ other income such as research grants, payments from a
registered disability savings plan (RDSP), wage-loss
replacement plan payments if you were not required to
withhold Canada Pension Plan (CPP) contributions and
employment insurance (EI) premiums, death benefits, or
certain benefits paid to partnerships or shareholders
How do you classify “fees or other amounts for services”?
So if your customer pays you for preparing your tax return, a T4A needs to be prepared?
You need to prepare one for the plumber and the electrician and the lawyer and who all else if you paid them amounts for services?
No, you do not need to report those kind of payments unless you make tax witholdings, as per the T4A guide, page 9, under the heading 'Box 28 - Other Income - Enter the following types of payments in box 28… 3. Any fees or other amounts paid to Canadian residents
for services from which you deducted income tax –
Report any other amount from which you have
deducted income tax AND which you do not have to
report elsewhere on a T4A or other information return.
From RC4157 - Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary:
Page 13:
Box 048 – Fees for services Enter any fees or other amounts paid for services. Do not include GST/HST paid to the recipient for these services. Notes The CRA is not assessing penalties for failure relating to the completion of box 048.
Box 028 – Other income: Enter any other amount which you do not have to report elsewhere on a T4A slip or other information slip if the amount is more than $500 or if you deducted income tax. In most cases, identified amounts are assigned a separate area for reporting.
Notes Do not report payments of fees for services under code 028. These payments should be reported in “Box 048 – Fees for services.”
Based on RC4157 I would argue you are supposed to report any fees for services on a T4A, but CRA is not enforcing it.
It does not say “unless you make tax withholdings”.
It is EITHER if you paid fees over $500 OR if you withheld tax.
I think the whole thing is ridiculous. This would create so much work that accountants would go crazy in February and I believe this is the reason CRA is not enforcing it.
and also it is outside of the scope of the ITA. It is CRA administratively adding another layer of red tape…
A Notice of Objection should have bee submitted within 90 days of the Notice if Assessment. 
Then you could have presented your case thouugh the objection process.
The first thing we did was submit an Notice of Objection as soon as the client received the reassessment… CRA continues to say that the employer needs to amend to say the slip needs to be deleted. CRA admits that the T4 prepared by CRA was to replace the T4A but wants our client to rectify from his end. Employer is no longer operating and my client can’t locate him.