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

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Virtual Accountant | Important Things To Keep In Mind When Filing A T4 And T5 Slips

If entrepreneurs have not filed their T4 or T5 slips properly, or at all, virtual accountant says this could trigger a payroll audit from Canada revenue agency. Now the problem that they are facing is that all of their grey area transactions are going to be scrutinized by an auditor. As Michael Gerber, the author of the E myth has said: ìthe fatal assumption is: if you understand the technical work of the business, you understand a business that does that typically work.ì Just because an entrepreneur is great at providing that product or service of their business, does not mean that they are skilled at running a business. There are several things that business owners should keep in mind when it comes to their T4 and T5 slips to help keep them out of trouble.

The first thing that entrepreneurs should keep in mind is what amounts need to be recorded on a T4 and T5 slips? What is recorded on the slips however you have coming out of the business for personal benefits, or for non-cash benefits. An entrepreneur can only take money out of their business through salary or through dividends. If they take money out through salary, that is going to be recorded on a T4, and if they take money through dividends, that is going to be recorded on a T5. Since most entrepreneurs end up taking a mixture of both, they typically will always have to file a T4 and T5 slips in their business.

Business owners should also understand what the difference is between a T4 and a T5 slips. Though they already are aware that a T4 slip is for salary and T5 slips is for dividends, many entrepreneurs should be clear on the differences between the two says, virtual accountant. Dividends are only available to be paid to entrepreneurs and shareholders if the business has turned a profit in the last year. Since these are away a corporation disperses profits, only business owners and shareholders are able to get paid through dividends. Salary, on the other hand, is considered employment income, and not only can business owners get paid this way, all armís-length employees as well. Business owners need to understand that employment income is considered an expense and will show up on the income statement of their business, and also source deductions will be required to be withheld from any salary or wages.

The next thing for an entrepreneur to understand when it comes to their T4 and T5 slips says virtual accountant is when they need to be filed. Every year, without fail the T4 and T5 slips need to be filed with CRA the last day of February. This means the twenty-eighth they of February exceptionally peer when it is the twenty-ninth.

By understanding what the T fives are recording, and when they need to be filed can help an entrepreneur ensure that they are appropriately and properly filing them, and filing them on time. By doing this, entrepreneurs can avoid triggering an audit with CRA for them properly filing their T4 and T5 slips.

Virtual Accountant | Important Things To Keep In Mind When Filing A T4 And T5 Slips

Both. Things that an entrepreneur can keep in mind when it comes to their T4 and T5 slips according to a virtual accountant, is that for all amounts of salary or wages that are being recorded on a T4 slip, there also needs to be a source deductions payment to Canada revenue agency. If an entrepreneur is not making these payments accurately, or on time this could trigger a Canada revenue agency to issue a payroll audit that entrepreneur. This can be financially devastating to an entrepreneur causing them to have to pay additional amounts of taxes as well as interest that they may not be able to afford.

Entrepreneurs should keep in mind that the deadlines to submit payroll remittances to CRA for T4 amounts is the fifteenth day of every month. Since source deductions are owed on all employment income, an entrepreneur needs to ensure that for every payroll they run, that they are submitting those payroll remittances to Canada revenue agency by the fifteenth day of the following month of the payroll. That means if an entrepreneur has issued a payroll in January, they need to ensure that they have submitted payroll remittances by February 15.

The next thing entrepreneur should keep in mind when it comes to source deductions and filing their T4 and T fives is that no source deductions or payroll remittances need to be filed for their T5 slips. Because the T5 slips are for dividends only, and dividends do not get source deductions taken from them, an entrepreneur only needs to worry about ensuring they have source deductions submitted for their T4 slips.

Business owners should also keep in mind that when they file their T4 slips, Canada revenue agency will be able to tell if an entrepreneur has paid enough in the source deductions for the year. Virtual accountant says the reason why, is because the T4 slip will show Canada revenue agency how much employment income has been issued, and a simple percentage calculation for each of the source deductions that should have been withheld from each paycheck. If the amounts that an entrepreneur should have paid does not match with the amount of money that they have paid, if an entrepreneur has fallen short the best-case scenario will be CRA will send a letter requesting the entrepreneur pays the shortfall in full immediately. However, the worst-case scenario is that the entrepreneur will trigger a payroll audit in their business.

Payroll audit should be avoided at all costs, because it will cause an auditor to scrutinize all transactions, and any transactions that are questionable may be considered taxable. This can cause significant financial hardships for entrepreneurs, especially if they had a significant number of transactions that are legitimate businesses that have been classified as personal or employee payments. An entrepreneur can avoid this scenario simply by ensuring they pay source deductions on time and in full and file their T4 and T5 slips on time.