Incorporated Subcontractor was issued a T4A, In my experience he should’ve been paid through AP as a vendor, not through payroll and a T4A shouldn’t have been issued at all… the amounts were marked under box 048. Should this be retracted? Worried that this will spark an audit from the CRA, it’s the clients first year and they haven’t had multiple contracts/clients. If the CRA determines it’s not a subcontractor relationship and should have been an employee-employer it will be detrimental to the business.
I recall the 2019 webinar about including all service fees in box 048, but haven’t seen any updates or clarification since.
That is correct… subcontracted individuals whom you paid more than $500 are to be issued a T4A … box 48 is correct box.
Please check CRA website for further instructions.
My understanding in simply terms is this system is to designed to help CRA ensure that all income is reported.
The issuance of a T4A box 48 would suggest the individual is Not an employee and is paid as a Vendor. Construction industry uses from T5018 instead of T4A.
My info was from my conversation with the auditor, as well as I remember this was discussed in a detailed course from Video tax News.
No, I do not nor do I have the time, to find documentation to back this up at this moment.
Yes, there is no penalty for failure to file UNLESS you have been instructed to do so in writing by CRA. ( My client has such a demand)
The argument was “ How can we possibly issue a T4A for every single supplier over $500? What would be gained by issuing a T4A to Telephone and Power companies.?”
At that time, the auditor explained the intent of the T4A was intended to catch items in COGS, janitorial staff, etc.
For my clients, I prepare based on COGS not every supplier.
I agree that is CRA requires it you have to file it.
I still think that it is only based on COGS is an auditor’s opinion.
Video Tax News [PTU2019 2020 Text book]:
T4A FILING OBLIGATION
In an October 6, 2017 French Technical Interpretation (2017-0709001C6, Larochelle, Sophie), CRA was asked about the requirement to prepare a T4A slip for fees and commissions (Paragraph 153(1)(g) and Regulation 200(1)). CRA noted that there are only two administrative positions relieving the taxpayer from this obligation, being:
• the total payments are less than $500 and no taxes were withheld; or
• the services are rendered to an individual by a professional or tradesperson, or relate to repair or maintenance of the individual’s principal residence.
CRA referred to their Guide RC4157, which deals with T4A slips, indicating fees or other amounts for services rendered are to be reported, net of GST/HST, in Box 48 of the slip. The Guide also notes that CRA does not currently assess penalties for failure to complete Box 48.
CRA indicated that this was a temporary measure, adopted when Box 48 was added in 2010.However, this did not relieve taxpayers from the requirement to declare such payments. Failure to do so is subject to penalty (Subsection 162(7)).
CRA finally noted that the receipt of an invoice with valid tax numbers does not alleviate this filing requirement.
Editors’ Comment
Although Guide RC4157 still indicates that penalties are not being assessed for failure to complete Box 48, this Technical Interpretation, which was issued in response to a question at a roundtable at the 2017 APFF Conference, has raised concerns over whether this penalty waiver will continue. Many practitioners have commented on the breadth of the technical T4A requirements, and CRA has been asked on several occasions in the past to clarify the specific payments they do, and do not, expect will be reported in this manner.
I looked at the 2020 and 2021 text books as well and there is no mention anywhere that this is just based on COGS.
As @rachelavryl said, a T4A slips are to be issued for contractors - that is, businesses who ARE paid through AP. T4 slips are issued to employees. T4 slips are not the same as T4A slips.
Again, I concur with @rachelavryl - T4A slips are to include the recipient’s BN, unless they don’t have one, in which case, the T4A must report the recipient’s SIN. This applies to incorporated businesses as well as proprietorships.
I have a conversation with my clients if they employ contractors/subcontractors, explaining that CRA has not been enforcing the use of T4A slips to report box 048 payments, but it is legally required. If the client wants to comply with the ITA, I do prepare and file the T4A slips for them (or T5018s for construction clients).
I do see T4A slips that my clients have RECEIVED from their clients or “employers” but my clients don’t issue a T4A slip with my name or BN on it. It’s more of a concern if you want to claim a tax deduction for a payment to a contractor who doesn’t give you an invoice - what other proof do you have that you paid them?
I have been discussing this same topic with my client just this week. They were a sole-prop working for a single entity but it was a contractor relationship. They met all of the various contractor criteria except for provided “tools” and even then it was only software and access to letterheads that my client was using. My client still provided their own computer, worked their own hours and wherever they wanted to.
They were always receiving a T4A in the past but since things starting picking up, they incorporated. Nothing changes then. The T4A is simply issued to the corporation instead of to them.
Nonetheless, the T4A guide (RC4157) is very broad on the requirements. The real catch-all of “fees or other amounts for services” doesn’t help very much. Should I issue a T4A to Bell for providing internet services to my company?
From my research and discussions with colleagues, I’ve landed on the idea that it depends on the relationship between the payor and the payee. If the payee would have been expected to receive a T4A as a sole-proprietor, then they should be expected one when they are incorporated. Is the payee using the payors tools/systems for when it’s doing the work for the payor? Is there a written agreement (other than an employment contract) that exists to define the contracted arrangement?
I also agree with @Nezzer that it’s a good idea to issue one whenever you aren’t receiving invoices from your contractor. The only concern left with that is claiming ITCs if your contractor is charging you GST/HST and not issuing an invoice. Box 048 on a T4A is net of GST/HST and there’s no indication on the slip of whether GST/HST was charged. So if and when a GST audit is conducted, there’s no support for the ITCs claimed.
If there is HST involved, then the contractor must charge and remit the HST. If the payor wants to claim the ITC, he needs an invoice from the contractor. This is more fundamental than the T4A.
When you dealing with just one vendor, you got to be very seriously thinking about getting a ruling to avoid the possibility of being a Personal service corporation .
When you only have one vendor, for couple years. Many cases I read in the past, in CRA’s view, the opportunity for profit can not be established.
How does this apply to every manufacturing company?
Maybe the auditor should check what COGS is?
For all material and subcontractors cost a company issues invoices, for labour T4s.
Google COGS and send it to the auditor.
A bit sarcastic, but completely applicable to the reason for asking to issue T4As.
They aren’t dealing with just one vendor though. It was a strange situation when I first learned of it and I also advised about the PSB risks. But apparently this sort of arrangement is common in the legal profession. They are a lawyer working through a firm but they manage all their own clients and take all the risks and rewards of ownership and have the opportunity for profit. They basically only use the firm’s legal library and billing software. The clients they work for mostly don’t even know the firm exists.
I understand that. But if after the work/service is done and the contractor refuses to issue an invoice, then the payor is left with no choice but to issue a T4A to cover themselves. At least then it’s on the record.