I have a client who’s a student and made $4k cash income working as a farm hand. No T4. If I put this on a 2125 she is stuck with the CPP as she just turned 18 at the end of the year. If I create a T4 and enter the amount in box 14, no CPP is calculated. Either way no income tax is due. Is there a correct way?
This is a question of fact. Was she an employee? If so this could be “other employment income” (Line 104), but if she was not an employee then the T2125 is the correct place, and she will owe CPP.
Line 130 would be the only other option, but since it was a farm labour job one of the above would be more correct.
Edited: to correct line number and clarify!
Line 130 is Other Income which does NOT create RRSP room.
A CRA review of line 104, may yet have CPP to paable y (plus any interest charged on the Notice of ReAssessment which you might be asked to pay as the professional preparer).
As @helga_spence mentioned, I would report it under line 13000 rather than line 10400. If you report it under T2125, the CRA may send a pre-assessment verification notice where they would need to see the license, and business number opened, etc. Best to report it as other income.
Thank you for your responses. She was not 18 when she earned the income although turned 18 later that year. CPP is mandatory from age 18-65 although I don’t know if this is one of those “year in which you turn” rules.
At $4k it doesn’t really matter that much. The amount of CPP would be quite small. As far as a T2125, I have yet to see CRA ask for a licence or HST number in such a situation. I have yet to see CRA question it when using Other Income. The amount just is not material enough for the computer to kick it out which is the only way that a human will look at it.
Although I have to agree with this, I don’t believe this would be the case for when someone receives cash income but they aren’t self-employed or have a T4 slip.
I’ve had a client who would report her babysitting cash income as a self employed business income. She would earn annually $5,000 cash only. When we would report it on as a T2125 income, she would contribute towards her CPP but she had also received the Canada Workers Benefit (CWB) which would as result get her some refund. Lo and behold, CRA had done a pre assessment verification review where they had asked her for her business license and business number which she didn’t provide because she didn’t have it. If a client is earning cash income but they don’t have anything to backup their claim for their business/employment, it is best to report it under “other income” so that there won’t be any CWB amount being claimed.
This surprises me. You don’t need a business license to babysit in Canada. But I’m not surprised that CRA wanted proof of eligibility for the CWB. Proof of income (cancelled chqs, invoices, receipts, timesheets) should have been sufficient.
In my client’s case she’s a student and under 19, so not eligible for the CWB anyway and as @obhorst says, its so so immaterial that it doesn’t matter anyway. I just wanted to pick it up for completeness and if it could help her RRSP contribution room then great. It’s income that she earned after all.
But having a business number is entirely optional for someone in that income range. And I have filed for many young people with small amount of cash income with never any questions. Even the business licence in Ontario seems to be optional until you go to borrow money or something like that. I have a farm business which has been in operation for more than 5 years, borrowing large amounts of money and last year they were finally asked for their Ontario business Registration.
T2125 is indeed a better way. To plan for a possible CRA assessment I’d make a voucher/receipt indicating the nature of work, period, payment date and the amount with the names, addresses and phone numbers of both the farmer and the client in the bottom. Have the client sign it and also take it to the farmer to sign.
Are you talking about the farmer’s licence and business number? The farm hand doesn’t need a business number at 4K but a T2125 is the best place to record cash income since he does it for a living.
If it’s farming income, the form is T2042 and the income is Custom Work. Like the T2125, it would trigger CPP.
I would tell the payer to issue a T4 as required. Since under 18 when earned no CPP, just a bit of EI ($63.20). So much BS with “casual wages”.
Failing that I use the very last box at the bottom of the T4 entry screen “Tips and other employment income not reported on slips”. If and when CRA questions it (not likely) just turn in Joe Farmer.
Yes @jimt . So much BS with “casual wages”. I now see why so many people don’t bother reporting it. I appreciate all the feedback and after some research, I found that CPP is mandatory in the month after the month in which the employee turns 18. Since it’s clearly “earned” income and she earned it while she was 17, I think line 104 makes the most sense here.
@jglass Good point about the “employee vs contractor” rules.