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Many entrepreneurs understand when they have to file their personal taxes and corporate taxes, they may not know that they also have to file their T4 and T5 slips as well. The virtual accountant says many entrepreneurs do not even know that this is something that they have to do until it is too late. An entrepreneur should understand what a T4 and T5 slip is, so that they can ensure they are submitting it properly and on time. The T4 the T5 slips are recording the amount of money that the entrepreneur has taken out of the business. Since an entrepreneur can only take money out of their business through a salary or a dividend, a T4 records all the salary taken from the business, where the T5 records all of the dividends.
It is also important to note that anyone in a business that gets paid a salary or wages will get a T4 issued that amount that they have been paid in the year. T4 slips record of all employment income and virtual accountant says that employment income must have the appropriate source deductions withheld from it. Therefore, when an entrepreneur submits their T4 and T5 slips, Canada revenue agency will be able to see how much source deductions an entrepreneur has owed them throughout the year, and they will compare it to how much an entrepreneur has sent them.
If an entrepreneur has paid to little, this could trigger a payroll audit. An entrepreneur should understand that they have until January 15 to catch up on any source deductions that they may have shorted Canada revenue agency. If an entrepreneur does not have the cash in order to be able to make that payment, they may ask their virtual accountant to help them reclassify all of their income as an entrepreneur as a shareholder loan or a dividend. That way, all of the payroll remittances that an entrepreneur has submitted to CRA for themselves can then be diverted to payroll remittances for their staff. This could potentially help an entrepreneur avoid underpaying the source deductions and thereby avoiding potentially triggering a payroll audit.
By understanding that there is a filing deadline for T4 and T5 slips, as well as deadlines on when to submit payroll remittances to Canada revenue agency, this can be enough to help entrepreneurs avoid triggering a payroll audit in their business.
The reason why a T4 and T5 slips need to be filed by the last day of February says virtual accountant, is because personal taxes are due in April, and an entrepreneur needs to ensure that they are employees as well as Canada revenue agency is ready that process. In fact, if an entrepreneur does not have their T4 and T5 slips filed on time, they may actually trigger a payroll audit by Canada revenue agency.
If an entrepreneur is facing a payroll audit in their business, what is going to happen is an auditor is going to review all of their bank statements and the general ledger for their business in order to verify every transaction in the business that an entrepreneur made personally as accounted for on their T4 and T5 slip. Any additional transactions that have been made that were not accounted for will be assessed source deductions and interest.
An auditor is also going to be looking for amounts that an entrepreneur may have paid employees that should have had source deductions taken from as well. The virtual accountant says if an entrepreneur has paid staff this way, and an auditor will find it. But it also puts at risk transactions that an entrepreneur has made to any individuals. For example, if an entrepreneur hired an unincorporated business for services, and made the check out to that business owners personal name, and auditor may consider that a person a staff member and be assessed source deductions. The number of times this may have been in business can put an entrepreneur at significant risk for paying additional taxes. It is far better for an entrepreneur to avoid triggering a payroll audits and avoid an auditor assessing additional source deductions for a variety of transactions.
However, if a business owner is facing an audit anyway, they should be requesting their virtual accountant helps them go through all of their personal transactions to ensure that anything that has not previously been accounted for is attributed to the entrepreneur’s shareholder loan account before the auditor reviews the financial statements. This can help an entrepreneur show the auditor all of the transactions that should be looking for, which will give them more credibility an entrepreneur finds someone grey area transactions to scrutinize.
In order for an entrepreneur to simply avoid dealing with headaches associated with a payroll audit, all they have to do is ensure that they are doing two things in their business. File their T4 and T5 slips on time every time. The filing deadline of the last day of February is extremely important to remember. The second thing that an entrepreneur needs to keep in mind is to ensure that not only are they paying their payroll remittances on time every month, but that they submit the correct amount, so they can avoid being short on what payroll remittances they are submitting, and avoid Canada revenue agency from deciding to issue a payroll audit.
