Virtual Accountant | Filing T4 And T5 Slips Properly
One of the most important things an entrepreneur can remember when it comes to their T4 and T5 slips properly say a virtual accountant is to ensure that they are filing them on time in order to avoid a payroll audit. If an entrepreneur triggers a payroll audit from Canada revenue agency, the auditor will look through all transactions in the business over the past year, in order to ensure that they not only paid all their employees correctly but that all money that an entrepreneur has taken out of their business has also been accounted for on those slips. Since many entrepreneurs end up taking more personal benefits from their business than they usually claim, this is a risky move.
The first thing that entrepreneurs need to do when filing their T4 and T5 slips properly, understands the slips are for. These slips were to all of the money that an entrepreneur takes out of their business. The T4 refers to salary or wages that an entrepreneur pays themselves as well as their employees. This money requires source deductions taken from the amounts and sent off to the Canada revenue agency. Employment income is also listed as an expense on the entrepreneur’s income statement. Meanwhile, T fives are specifically for dividends only. Since owners and shareholders are the only ones that are allowed to take dividends from the company, they are the only ones that should get a T5 slip. Dividends are not considered an expense of the business, because these are the disbursements of all of the prophets in the business.
In order to avoid triggering an audit, entrepreneurs should understand that they need to have their T4 and T5 slips by the last day in February. If they do not file by this deadline, they could potentially trigger a payroll audit. Not only do they need to file these slips on time, entrepreneurs also need to ensure that they have submitted their payroll remittances on time as well. Payroll remittances are due by the fifteenth day of the following month. Any amounts that an entrepreneur has paid in January will have February 15 as the filing deadline and so on. A virtual accountant would recommend that entrepreneurs avoid waiting until the fifteenth to file, and instead pay all source deductions at the same time as disbursing payroll. However, if an entrepreneur does find that they are behind in source deductions payments to Canada revenue agency, they have a grace period until January 15 to catch up on anything that has been missed from the previous year.
The virtual accountant says once entrepreneurs understand what T4 and T5 slips are, when they need to be filed, and went to submit their source deductions remittances to CRA, they will avoid a payroll audit. Not only is this going to save an entrepreneur significant amounts of time and money, but it could also potentially help them avoid paying additional taxes, penalties, and interest charges.
Virtual Accountant | Filing T4 And T5 Slips Properly
In order for an entrepreneur to ensure that they do not trigger payroll audits, they should ensure that they are not only taking the correct source deductions off their employee’s payroll checks says virtual accountant, but they also need to be submitting the payments to Canada revenue agency on time. If an entrepreneur misses either of these, they could trigger a payroll audit, which could mean bigger problems for an entrepreneur.
Many entrepreneurs do not understand how Canada revenue agency would even know if they have not paid the correct source deductions. However, when an accountant prepares the T4 slips for the entrepreneur, the T4 slips will contain the information of all of the amounts of money that an entrepreneur has paid to their employees, and have a quick calculation on the slip showing how much source deductions should have been removed. If the amount of money that an entrepreneur has sent to Canada revenue agency is less than that amount, that is when CRA will have a problem.
The best-case scenario if an entrepreneur has not paid enough source deductions, is that Canada revenue agency will send them a letter demanding the amount that the entrepreneur is short. However, the worst-case scenario is that an entrepreneur will be audited. Canada revenue agency auditor will request an entrepreneur to provide them with their general ledger and their bank statements for the previous year. They will check to ensure all the T4 and T5 slips that have been issued are accurate, or if an entrepreneur owes more.
An auditor will look at the bank statement and see what amounts went out to individual people. The reason why they are looking at this is to verify if these people that got paid from a business should actually be considered employees. This is where hiring unincorporated contractors is risky, because CRA may consider these contractors staff. Even if they only worked very occasionally for the entrepreneur such as cleaning their office.
The next thing that an auditor will look for is all of the cash and non-cash benefits that an entrepreneur has taken out of their business to ensure that that amount has been claimed on their T4 slips. If an auditor finds out that an entrepreneur has missed claiming any cash on their T4 slips, not only will they have to pay additional taxes on that amount, but it could also because the auditor to look even closer at their shareholder’s loan account.
If an entrepreneur is getting a payroll audit, one of the first things that they should do before the auditor arrives according to a virtual accountant is to assess their personal benefits. This means they should go all of their statements and if they have paid themselves any cash or non-cash benefits that are not claimed on their T4 slips, they should attribute it to their shareholder loan before the auditor comes, so that the auditor will not find instances of cash benefits not being claimed.
The best-case scenario will be for entrepreneurs to avoid payroll audits in the first place, but if they have will audit, an entrepreneur should ensure that they are being as honest as possible to avoid paying additional penalties, taxes and interest.