I am grateful and appreciative for all the comments re T4A in this community.
These comments have led to me to think in detail about the practicalities, protocols, and techniques to structure my Chart of Accounts, to revise my invoices, to analyze client services, and to post my invoices and track my client payments within my existing bookkeeping application.
When I think about the transaction structures I start with T-account models for the Debits and Credits. I think about the period and matching transactions and how these are pulled by or pushed to the general ledger, sub-ledgers, period end adjustments, and financial statement preparation.
This process has led me to conclude that I am confused by the reporting requirements as well as by how to structure a practical implementation plan based on the information presented in the CRA webinar. I find when I try to map the CRA requirements to an implementation plan that I find the CRA information to be confusing, full of contradictions, and nearly impossible to implement retroactively in my case since this would require me to unbundle my fixed priced quotes for combined services and to split supplies from services. I am also unclear about how to apply the pass-through cost of supplies since the supplies are tracked on an accrual basis, without an inventory system, but just a cost estimate. And, how would I track the sales price of these costs retroactively to historical fixed priced engagements in prior periods and already reported as income on an accrual basis, to now unbundle these and match them to the invoice payments in subsequent periods? Bottom line I would need to revamp my entire price and sales strategy, chart of accounts, add sales inventory, apply job costing, and reconcile income reported on an accrual basis to T4A income reported on a cash basis.
My candid thoughts are as follows…
I think that this webinar and this T4A initiative was hastily cobbled together. Before I make an interpretation and before I take final action I would like more clarity with examples and illustrations.
For example,
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Are we supposed to post our clients payments as T4A income received by our corporation or by ourselves as sole proprietors or partnerships each time we prepare bookkeeping and/or tax services for a proprietorship or corporation etc and receive more than $500 (not including GST/HST) for the year.
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What happens when accounting supplies (such as paper, folders, binders, tabs), and, subscriptions to third-party apps (such as LedgerDocs, Hubdocs, QBO, Xero, etc) are included in our pricing model. Do we unbundle the pass-through cost?
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What happens when services are bundled with personal tax and personal bookkeeping (T1, capital gains tracking, family tax returns, etc) with business tax and business bookkeeping for T2125 and/or T2, etc. How do we unbundle to services income and the cost of the supplies?
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For those who offer their services virtually how do we apply the many online, website, webforms costs? Or, is that simply overhead? When are those costs part of the service delivery? When are those costs considered to be supplies?
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On a practical level, does this mean that we report all income received from businesses to be T4A reportable income because we can’t unbundle the pricing? And do we ignore the supplies and product costs because we are unable to match them to the job?
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What do we do with services income earned from non-residents or foreign entities? Are these exempt as tax treaty countries based on Country of Residency for Tax Purposes?
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How do we track these payments and related costs on a cash basis when we are required to maintain our bookkeeping on an accrual basis?
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Does this mean that we have to maintain two sets of books - one set on an accrual basis and one set on a cash basis?
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Or, does this mean that apps providers need to create a T4A module similar to the payroll module.
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How do we create and store our supporting documents? In which periods? How long do we retain the records? Six full years after the last payment?
In summary…
This all seems to be some bureaucrat’s good idea for audit and an underground economy income fishing expedition without much thought or understanding of the mechanics of bookkeeping write-up procedures, cash basis vs accrual basis accounting, the capabilities of accounting apps, the mechanics of producing financial statements, and how this fit with Canadian GAAP, APSE, and IFRS accounting standards for financial reporting.
Where was the consultation with CPA Canada, IPBC, and the Canadian Payroll Association?
Was this just some politically motivate good idea?
Where is the commitment to transparency and cutting red tape? Are those platitudes?
Final comments…
The last time CRA massively changed the T4A some 10+ years ago it took a couple of years for the dust to settle. I struggled for two years to find consistent and clear information.
The last time that I recall CRA introduced a very confusing set of poorly planned and extensive changes was the determination of place for GST/HST about 10+ years ago. In that case, it took about four years for CRA to work through most of the kinks and create referenceable material.
Next steps…
I will watch, study, and wait for this to unfold during 2019.
I will track my client payments in Excel.
I will try to unbundle my fixed price formulae.
At the end of 2019 I will do my best to understand and identify my reporting requirements and those of my bookkeeping and tax clients.
I will consider joining the Canadian Payroll Association.
I will connect with my CPA friends to find out their stand on this.
I will continue to attend all CRA webinars and watch for all posts, web pages, guides, etc. Usually it takes CRA two or more years to update these with new information. Usually it takes an additional two or more years for this information to hit the folios.
I expect that bookkeepers and tax accountants will be a key CRA Review and Audit target at some point in the future.
I expect that other services based industries such as Lawyers, Engineers, Architects, Geologists, Health Care, etc. will also be CRA Review and Audit targets. I hope that our IPBC association and that all services based professional associations begin to lobby CRA for consultation and clarity.
I will watch for videos comments from Video Tax News. https://www.videotax.com/
I plan to attend the Video Tax News’ fall 2 day in depth conference.
I will reach out to a couple of Tax Lawyers I know.
I will not be fear mongered or left feeling helpless. Instead I will do my best to make an informed decision.
In January 2020 I will take reporting action based on my understanding of all of the above.