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E-Myth – “Why most small businesses don’t work & what to do about it”

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Virtual Accountant | Filing Deadlines For T4 And T5 Slips

When entrepreneurs get into running a business for the first time, virtual accountant says they are in a difficult position of learning how to run a business without the benefit of being able to make mistakes. Therefore, they have to avoid filing anything and correctly in order to avoid having to pay late penalties and interest charges. One way that this is extremely important is when entrepreneurs are filing their T4 and T5 slips.

The first thing that is important when an entrepreneur is filing their T4 and T5 slips, is understanding what those slips are reporting to the Canada revenue agency. These slips are reporting the amount of money that an entrepreneur has paid out of their business in employment income or dividends. The virtual accountant says that a T5 slip is specifically for the dividends of the corporation. Since it is how an entrepreneur disperses prophets of the business, it is not considered an expense of the business and is only payable to business owners and all shareholders.

T4 slips, on the other hand, refers to all of the employment income that an entrepreneur has paid themselves, or any staff member. Employment income is considered an expense on the entrepreneur’s income statement, and most importantly, all employment income must have the right source deductions withheld on the paycheck. This means any amount of employment income paid in a year needs to have the employer as well as the employee portionís of CPP, EI and income tax withheld from the checks and submitted to Canada revenue agency.

The filing deadline for T4 and T5 slips is always the last day in February every year. When an entrepreneur submits their T4 slips, Canada revenue agency will very easily be able to see how much employment income an entrepreneur has disbursed in that year says, virtual accountant. They will then know how much source deductions should have been submitted to CRA, because it is just a percentage off of each employment income. All payroll remittances are due at Canada revenue agency by the fifteenth day of the following month that the money was disbursed. Virtual accountant recommends that entrepreneurs do not wait for this day to remit payment, but get into the habits of ensuring that there paying at the same time that they run payroll, therefore they never run the risk of paying late, or accidentally missing a payment.

If an entrepreneur is behind in payments, they do have a grace. Up until January 15 two catch up on anything missed from the previous year. If an entrepreneur does not have enough money to pay the additional amounts, they may get help from their virtual accountant to help reclassify their own employment income as a shareholder loan or dividend so that the payroll remittances that an employee has submitted on their own behalf can be reclassified to their employees. Business owners can avoid being short on their payroll remittances by doing this.

Virtual Accountant | Filing Deadlines For T4 And T5 Slips

Entrepreneurs can significantly avoid problems by understanding when and how to file their T4 and T5 slips properly according to a virtual accountant. If entrepreneurs do not file these slips properly, or if they owe additional payroll remittances to CRA, this could trigger a payroll audit. This can be extremely detrimental to business owners, by causing them to have to pay more in source deductions, as well as interest payments. Most entrepreneurs struggle with finances, with 29% of all failed entrepreneurs saying that running out of money was the reason why their business failed. By triggering an audit and having to pay additional amounts in taxes and interest charges, can cause an entrepreneur to be so short on money that they are at risk of going out of the business.

Two ways that entrepreneurs can trigger a payroll audit is if they do not file their T4 and T5 slips on time, which is due on the last day of February, or if they have not submitted the right amount of payroll remittances to Canada revenue agency. If an entrepreneur has been chosen for a payroll audit says virtual accountant, the auditor is going to ask them for all of their bank statements in the past year, as well as the general ledger of the business.

The auditor is going to review the bank statements in order to see what amounts that an entrepreneur has paid to individual people. The reason why they are looking at this says virtual accountant, is because there are looking to see if employees were being paid without having the appropriate source deductions taken from their income. An entrepreneur is at a significant risk if they have hired an unincorporated contractor to work in their business. Even if they are legitimately not staff, CRA may assess them as staff regardless, and because an entrepreneur to have to pay source deductions on all amounts that went to individuals. If an entrepreneur has hired an office cleaner, and they get paid in the amount of a check to their personal name once a month, this is an example of a transaction that the auditor may claim is an employee.

The second thing that the auditor is going to be looking for is to ensure that all personal benefits cash and non-cash like are going to be claimed with a T4 or a T5 slip. If not, they are going to verify that those amounts have been claimed in the shareholder loan amounts. All transactions an entrepreneur has that are not claimed will have the auditor taking note of these transactions so that an entrepreneur can pay the appropriate taxes on it as well as interest charges and late penalties. If an entrepreneur has a significant amount of transactions they have not claimed, will have the auditor be more likely to classify grey area transactions as personal expenses, potentially costing an entrepreneur additional amounts of taxes that would not have to be paid otherwise.

It is very important that entrepreneurs not only claim all amounts of money properly says virtual accountant, and then file their T4 and T5 slips on time, and ensure that they are current but there source deductions to avoid risking a payroll audit in their business.