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T4A for all "fees for services"?

I just watched the live CRA webinar on T4A requirements:
https://live.webcastcanada.ca/webcast/login/42e32e94-b76c-4502-aa5c-afafcd9d72e3

They are saying that (almost) all fees for service must be reported on T4A slips. They gave a couple of examples, and listed specifically accounting fees, legal fees, professional fees. My jaw is still on the floor.
This means every business client that pays me more than $500 per year is required to give me a T4A for year-end, or bookkeeping, or tax prep services??? And, similarly, they are required to send T4A slips to all subcontractors - not just construction companies (T5018s)???
Am I the only one who didn’t know this?

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The T4A guide is confusing. I think technically the T4A must be filed for fees for services but CRA doesn’t enforce that filing “requirement”. I would imagine if a provider asks for a T4A you should issue it but in my years of practice, I’ve never encountered that situation or a request by CRA to issue T4A’s to service providers.

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The $500 minimum applies to footnote code 028, not sure about box 048. The T4A guide has said in past years, and still says, CRA is not applying penalties for a failure to complete box 048. On the one hand, CRA says “thou shalt complete T4A’s” and on the other, says we’re not going to penalize you if you don’t. If a client asks, that’s my response. It’s just a fishing trip to try to pick up unreported income. I very much resent being made part of their enforcement team. Having said this, one of my clients has had a payroll compliance audit where the auditor ignored taxable benefits and went straight to their GL to pick up payments that looked like services. The total is around $1.7M over 2 years. Just waiting to see what the fallout will be. I don’t think it’s an easy task to pull that information out of an accounting system. Many payments are for both supply and service. I know Sage 50 allows for printing of T4A’s, but that assumes all payments to a vendor flagged for a T4A represent services. Compliance is going to be costly.

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Please send me an email request if you wish a copy of today’s CRA Webinar re T4A requirements. I have pdf versions of slides and transcripts. Unfortunately PDF’s are no longer acceptable attachments.

dominique.dabolczi@gmail.com

In brief, my takeaway from today’s (2019-02-20) CRA Webinar Presentation is that T4A slips must be issued in far more circumstances than are currently issued in my experience.

T4A must be issued.

  • For all services based sub-contracting of $500 or more in total annual remuneration.
  • Reported on a cash basis for the calendar year.
  • For all sub-contracting provided by individuals or businesses.
  • Including legal, accounting, consulting, virtual assistants, etc.

Excepting…

  • Paid for personal expense
  • Except paid to hobby and business
  • Utilities - electricity, gas, water/sewer, telephone, internet

And

  • Construction is reported on T5018
  • Government sub-contracting on T1204

In summary, all services based sub-contractors to businesses must be issued a T4A with a few notable exceptions.

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We only recommend our clients file T4A’s when the lines between subcontractors and employees are getting blurred. It makes for a very official documents that clearly shows that the company deems them contractors, and also ensures that they report the income as such… so less room for the contractor claiming ignorance or misunderstanding down the road.

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@fabien

Good distinction.

I would like a copy please

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Bert van Delft CPA, CA | 98 Scarboro Beach Blvd. Toronto Ontario M4E2x1 | C: 416.270.9898 f 1.877.335.5064

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@Nezzer

I attended today’s webinar. I understood that sub-contractor vs employee was the issue for T4A vs T4.

Therefore if you are preparing Tax Returns or Bookkeeping for another accounting firm, that would sub-contracting.

If you have a sole proprietorship then you need to pass the doing business vs employee threshold test.

If you are operating a corporation and have only one or two clients, then you may be subject to T4A.

Otherwise, I don’t think that this would apply. If your profits are at risk, you own your own tools of trade, and you are responsible for quality, with more than three clients, and a plan to be profitable, then generally you are a business owner and not a sub-contractor.

Or, maybe I misunderstood.

Bert van Delft CPA

Please send me your email address to dominique.dabolczi@gmailcom. I can not upload PDF’s to the TaxCycle community. I can’t find your email address online.

@dominique_dabolczi I’ve changed the permissions so you can upload a PDF if you wish.

@dominique_dabolczi
I agree with your fist post - it sounds like T4A slips are supposed to be issued more often than they currently are. Per your second post, yes - perhaps they were trying to stress the difference between T4 and T4A filing, but that is not what I was concerned about.

Thanks @fabien @jhd.hemeon @kevin - your comments confirm what I suspected. But, now wondering if the underlying message of that webinar is CRA trying to encourage more compliance…

Perhaps CRA is looking at extending the reporting of service fees much like the T5018 for construction subcontractors. However, I haven’t seen anything in the news about this and haven’t heard anything like that from CRA employees I’ve spoken with. I wonder if it’s just CRA stressing the actual requirements of the T4A guide. I’m not going to volunteer this advice to my clients unless/until CRA starts demanding it.

My feeling is that our CRA tends to copy some of the ideas dreamed up by the IRS. Mandatory reporting of foreign asset holdings, with penalties for non-disclosure (regardless of whether any income was properly declared) is a big one that comes to mind.

My impression is the move toward forcefully reporting of virtually ALL goods and services received (via form T4A) is pretty much in line with the IRS form 1099-MISC.


File Form 1099-MISC for each person to whom you have paid during the year:

at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest;
at least $600 in:
    rents;
    services performed by someone who is not your employee;
    prizes and awards;
    other income payments;
    medical and health care payments;
    crop insurance proceeds;
    cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish;
    generally, the cash paid from a notional principal contract to an individual, partnership, or estate;
    payments to an attorney; or
    any fishing boat proceeds,

In addition, use this form to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

You are not required to file information return(s) (form 1099) if any of the following situations apply:

You are not engaged in a trade or business.
You are engaged in a trade or business and
    the payment was made to another business that is incorporated, but was not for medical or legal services or
    the sum of all payments made to the person or unincorporated business is less than $600 in one tax year

The CRA, in yesterday’s webinar, indicated that the T4A Fees for Services is to be used:

  • Cash Basis
  • Calendar Year Basis
  • Services Only
  • No Goods
  • No Sales Tax
  • No Personal Services (That is, a person pays you for a personal tax return does not go on the T4A, but a corporation pays you for a corporate tax return does go on the T4A.)

If you have someone who is paying for both goods and services to the same vendor, you have to break the payments between goods and services and only issue on the services portion.

@TimParris

There were some strong feelings expressed about this seminar in the Institute of Professional Bookkeepers (IPBC) Forum and several of the FB Groups to which I belong.

Not everyone plans to comply with these regulations.

There was also a lot of confusion about who has to report what, when, and how on the T4As.

CRA T4A webinar slides and transcripts attached.
CRA Webinar, 2019-02-20, T4A, Transcript…pdf (60.8 KB)
CRA Webinar, 2019-02-20, T4A, Interbusiness Services, cra-feb20-19-eng-slides.pdf (737.6 KB)

Wow! Did anyone bring up the problems and cost of implementing each of these requirements?

An A/P module records invoices by invoice date, not payment date (accrual vs cash).

For an off-calendar fiscal year, it’s possible that 2 sets of reports would have to be pulled.

I haven’t tried T4A’s in Sage 50, but the T5018’s print amounts including tax.

How is a payor supposed to separate payments for both goods & services. For example, an IT consultant gives a lump sum quote for installing a new file server. This includes both goods and services. Supplier issues an invoice based on an agreed quote. Does the payor take a shot at separating the two components?

I’m guessing that, for all but the very simplest of situations, the accounting system will be incapable of producing T4A’s and the summary. A third party solution (eg. AvanTax from Elm Computers) will be necessary to produce the forms. A/P module customization may well be necessary to produce the required information. And, unless this can be imported in a third party program, manual re-entry is required.

I don’t disagree with CRA trying to route out unreported income, but this is way beyond reasonable.

I’ve been told that this was discussed at a CRA Roundtable and CRA backed off, but I can’t find anything on it.

Harley Hemeon, B.Sc., CPA, CGA

Harley Hemeon Inc.

1639 Eastern Shore Rd.

West Berlin, NS B0J 1H0

Halifax office:

213 – 30 Chipstone Close

Halifax, NS B3M 4H5

Cell: (902) 483-8193

Fax: (902) 356-2716

West Berlin: (902) 354-3250

Halifax: (902) 407-0360

I have seen and heard situations where companies who issued T4A’s to sub-contractors. CRA audited those companies and they have to pay CPP and EI. CRA classified the contractors as employees instead. When preparing T4A’s ensure the employed vs contractor test is addressed.

Sorry, but cash basis is not based on the Vendor issue date. Cash basis is from the point of view of the customer. When did they issue the payment?

And the CRA has acknowledged that will be a disconnect between the financial statements filed and the T4A slips issued. And you MAY wish to look closely at the new T2125… to the right of the fiscal period.