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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 Know About Source Deductions

One of the reasons why it is so important for entrepreneurs to not only ensure that they are paying their source deductions in full, on time says virtual accountant so that they can avoid triggering a payroll audit in their business. Not only are payroll audits time-consuming, they can also result in an entrepreneur having to pay significantly more amounts of money in taxes as well as penalties and interest. Since most businesses tend to have cash flow issues, this can be financially devastating to entrepreneurs, especially as they are first starting out. In order to help entrepreneurs avoid this, they can understand how to appropriately submit payroll remittances on time and in full.

The first thing that entrepreneurs should ensure that they are doing, is keeping track of all the amounts of money that they personally take out of their business and that they pay their employees says, virtual accountant. If an entrepreneur takes money out of their business as employment income, this is noted all it is called a T4 slip. Business owners that take salaries and employees that take wages will get the amounts indicated on their T4 slips. This employment income has source deductions needing to be withheld from employees and the entrepreneur. This means that the correct percentage of employer and employee CPP contributions, EI and income tax not only need to be withheld from the checks, but they also need to be submitted to the Canada revenue agency.

If an entrepreneur has taken money out of their business from the prophets of the corporation, these are called dividends and are only payable to owners and shareholders. These are accounted for on T5 slips, but because they are not considered employment income, source deductions do not apply here says, virtual accountant.

While source deductions are due to be paid to Canada revenue agency by the fifteenth day of the month, the month following when payroll was issued. That means, if the payroll was issued at any time in January, February 15 is when the source deductions are due to be paid to Canada revenue agency. It is important that entrepreneurs keep in mind that Canada revenue agency will not be keeping track of the amounts that they pay every month, so if an entrepreneur has paid to little in source deductions, they are not going to find that out until the end of the year. Therefore says virtual accountant, it is very important that entrepreneurs are calculating the percentage is that their withholding correctly, and paying properly.

If an entrepreneur has missed a payment, Canada revenue agency may trigger a payroll audits, and if an entrepreneur knows that they have paid to little in source deductions, they have until January 15 of the following year to ensure that anything that they have paid to little is paid up in full. If an entrepreneur fails to file their T4 or it T5 slips on time, or have missed payments, or to little and payroll remittances, it could cause them to have to face a payroll audit.

Virtual Accountant | Important Things To Know About Source Deductions

It is important that entrepreneurs are being sourced deductions on time and in full says, virtual accountant. If an entrepreneur misses a payment or is found to have paid to little at the end of the year, they may trigger a payroll audit Canada revenue agency. This can be financially devastating to a business, because they may be assessed additional taxes as well as penalties and interest, that can be hard or impossible for small businesses to dig themselves out of.

However, if an entrepreneur has found themselves facing role audit, there are several things that they can do to make things go smoothly. One of the first things that they can do, is if they are facing a payroll audit, before their auditor contacts them, they should ask their virtual accountant to help them review all of their personal transactions from the business. If they have personal transactions that are not attributed to T4 and T5 slips, and an entrepreneur should attribute those to their shareholder loan account. That way, then the auditor reviews their statements, they can see that the entrepreneur has been proactive in trying to show up the auditor what transactions may have been missed. This can help demonstrate the credibility of the entrepreneur, allowing the auditor to give the entrepreneur the benefit of the doubt. This can be significantly beneficial when looking at grey area transactions.

When an entrepreneur is contacted by the auditor, they are going to ask them to provide monthly bank and credit card statements for the business for the past year as well as the general ledger of their business says, virtual accountant. The auditor is going to be looking at all transactions to see what amounts went to the entrepreneur, and what amounts went to individual people.

The amounts that went to individual people, is going to be because the auditor is looking to see if any employees were paid and did not have the profit source deductions taken from their check. If an entrepreneur has paid an unincorporated business for any services, and auditor may assess those payments as payments to staff. This is why hiring unincorporated businesses is risky for entrepreneurs, and why many corporations simply choose not to hire businesses that are not incorporated. When the auditor is looking at the personal transactions of the entrepreneur, there trying to determine how many personal transactions an entrepreneur had, that they did not claim Properly. Any missed transactions will be assessed taxes, and interest.

In order for an entrepreneur to avoid being faced with a will audit, virtual accountant says that all they have to do is ensure that there filing their taxes on time. Even if an entrepreneur is not able to pay their taxes, they can avoid additional penalties simply by filing by the due date anyway. And second way that entrepreneurs can avoid a payroll audit is simply by ensuring that they are submitting payroll remittances on time, and in full.