Virtual Accountant | Remitting Source Deductions On Time
While many entrepreneurs understand how important it is to withhold the correct source deductions from their employees checks says virtual accountant, as well as submit that payment to CRA, what many business owners may not understand is if they do not withhold the correct amount, or if they miss sending that amount to Canada revenue agency on time, that they will potentially trigger a payroll audit in their business. The other thing that would cause an entrepreneur to trigger a payroll audit, is if they miss the end of February deadline for filing their T4 and T5 slips.
Any amount of money that an entrepreneur has paid themselves as salary, and paid their staff will be counted on the T4 slip and they need to ensure that they are withholding the correct source deductions from their paychecks. This means the correct amount of employer CPP, employee CPP, EI and income taxes need to be taken off of those checks. An entrepreneur has until the fifteenth of the following month to submit that amount to Canada revenue agency. However, virtual accountant recommends that entrepreneurs do not wait until the fifteenth day of the month to submit payments to CRA, but get into the habit of doing it on the same day that an entrepreneur issues payroll. The reason why is so that an entrepreneur can avoid forgetting to submit the payments, or to have something go wrong in their business that could cause them not to file on time.
The T5 slips referred to the dividends that an entrepreneur or shareholder get paid. This is a way for the prophets of the company to be disbursed and is only payable to the business owners and the shareholders of the corporation. It is important to note that while entrepreneurs who have taken dividends need to claim it on their T fives, but they do not have to pay source deductions on that amount. It is very important that an entrepreneur keeps track of all of the money that they have taken out of their business so that they can properly record on their T4 and T5 slips.
CRA will easily find out if an entrepreneur has paid to little in source deductions, because the T4 slips will indicate how much money an entrepreneur has paid themselves and their staff, and it is a quick calculation to figure out the percentage of the source deductions that should have been withheld from their checks. If a business owner knows that they have not paid the correct amount, they will have until January 15 of the following year to catch up on anything they have missed. However, if an entrepreneur has not paid the correct amount, CRA may demand that an entrepreneur pays it in full, or in worst-case scenarios, could trigger an audit.
An audit could have an entrepreneur paying more in taxes, penalties, as well as interest charges, says the virtual accountant. Since most entrepreneurs do not have additional money in their business to be able to pay additional taxes and interest, it is in an entrepreneurís best interest to avoid a payroll audit at all times simply by filing T4 and T5 slips on time, as well as ensuring if remitted the right source deductions to CRA.
Virtual Accountant | Remitting Source Deductions On Time
If entrepreneurs do not understand what their T4 and T5 slip are, virtual accountant says they put themselves at risk of not filing them properly and triggering a payroll audit. Not only is a payroll audit bad because it could cause an entrepreneur time wasted, that any grey area transactions they may have in their business, will be scrutinized by the auditor, and could result in an entrepreneur paying significantly more in taxes, interest, and fees.
If an entrepreneur finds themselves being audited for payroll, they should expect that Canada revenue agency will ask them for their general ledger as well as all of their bank statements for the previous year. The auditor is going to be looking for very specific things. The virtual accountant says the first thing they are looking for is to see if an entrepreneur has sent any checks to people instead of companies. Any payments made to individuals could potentially have an auditor consider those people staff. If that is the case, an entrepreneur will owe source deductions on all amounts that an entrepreneur has paid individual people. This is the reason why if an entrepreneur hires an unincorporated contractor they can put themselves at risk. Even if those payments were not to actual employees of the corporation, and the auditor cannot verify that they are not employees.
The second thing that an auditor will be looking for says virtual accountant is all cash and non-cash benefits that an entrepreneur has taken out of their business. They are going to compare all of those amounts to the entrepreneurs’ T4 and T5 slips. If they discovered that any additional amounts have been taken out of the business that was not claimed, they will have an entrepreneur paying additional taxes on that amount, as well as interest and penalties.
If an entrepreneur is getting a payroll audits, in order to ensure the auditor sees how credible they are, an entrepreneur should first go through all transactions themselves, in order to verify that they have claimed all amounts on their T4 and T5 statements. And if they have not, they should then attribute it to their shareholder loan before the auditor gets their. That way, an entrepreneur can show the auditor that they are being reasonable, which will help the auditor give the entrepreneur the benefit of the doubt on the grey area transactions.
In order to avoid paying additional amounts in taxes, interest charges and penalties, virtual accountant says it is much easier for entrepreneurs to simply avoid payroll audits by filing their taxes on time, even if they cannot afford to pay the taxes yet, filing on time can help them avoid penalties. As well as ensure all payroll remittances are submitted to CRA by the deadline every month. By doing these two things, entrepreneurs can avoid triggering a payroll audit that can cost them lots of money.