Virtual Accountant | T4 And T5 Filing Overview
When entrepreneurs fail to file their T4 and T5ís on time or have not filed them properly, a virtual accountant says this will trigger a payroll audit. The reason why this is bad is that in addition to taking significantly more time and costing entrepreneur money, all transactions that might be considered in a grey area will be under scrutiny from the auditor.
Business owners should understand what amounts need to be recorded on their T4 and T5 statements. T fours are when an entrepreneur has taken money out of their corporation as a salary. And T5 is for when an entrepreneur has taken money out of their business as a dividend. Basically, virtual accountant says that any time an entrepreneur has taken money out of their business for personal benefits, or non-cash benefits, it needs to be recorded on either T4 or it T5 statements.
The reason why each statement is different is that the way an entrepreneur takes money out of the business affects the balance sheets differently. If an entrepreneur takes money out of the corporation as a salary or as wages, that is considered employment income. Business owners, as well as all armís-length employees, can take money out of the business this way. Because payroll is considered an expense on the income statement, all salary or wages must show up on the T4 statements. The virtual accountant says T5ís are only for dividends, which are only payable to owners and shareholders. This is actually not considered an expense of the business, but disbursement of the prophets of the business. These do not show up on the income statement as an expense because of that. Business owners should keep in mind that T fours will have source deductions and payroll remittances accounted for, however T fives do not because dividends do not have source deductions taken from them.
Entrepreneurs need to understand that their T4 and T5 slips need to be filed by the end of February every single year regardless of what is going on. That means February 28, or in the leap year February 29, all slips need to be filed. When filing a T4, a virtual accountant says CRA will know if an entrepreneur has paid enough source deductions throughout the year, because the T4 statement will indicate how much EI, income tax, employer CPP and employee CPP should have been removed. If that amount that should have been sent in has not been submitted by the business owner, they know that an entrepreneur did not pay enough source deductions for their payroll amounts.
It is extremely important that entrepreneurs ensure that there filing their T fours and T fives correctly and on time in order to avoid a payroll audit. By understanding the difference between T fours and T5ís, when they need to be filed, and what amount needs to be on them can help business owners ensure that they are doing it properly all the time, to avoid triggering an audit from Canada revenue agency.
Virtual Accountant | T4 And T5 Filing Overview
Entrepreneurs should ensure that they are filing their T fours and T5ís on time every year says, virtual accountant. Although many entrepreneurs are very good at the technical work that their business does, that does not necessarily mean that an entrepreneur understands how to run that business. For example, if a person is a good contractor, dentist or lawyer, that does not necessarily mean they know how to file their T fours and T5ís properly.
If an entrepreneur either submits their T fours or T fives too late or simply not at all, virtual accountant says that a payroll audit may be triggered by Canada revenue agency. The best-case scenario is that Canada revenue agency will notice that they either have not filed, or have not filed properly, and send the business owner a letter requesting appropriate payments. However, the worst-case scenario is that the Canada revenue agency will do a payroll audit. What happens in a payroll audit is that Canada revenue agency will check to ensure all T fours and T5ís that have been issued are accurate, or if an entrepreneur owes the government any more money.
An entrepreneur should keep in mind but the two main functions of a payroll audit are says virtual accountant. The auditor will come to the business and ask the entrepreneur to provide their general ledger and bank statements. The auditor will then look at the bank statement to see what amounts went out to people. The reason is that the auditor is looking to verify if the people that were paid were actually employees that an entrepreneur needs to issue a T4 for. For example, if an entrepreneur is paying their office cleaner, and they are an unincorporated business, and the entrepreneur issues payment to John Smith and auditor may consider them an employee of the corporation, and an entrepreneur needs to issue a T4 to them, as well as pay the appropriate source deductions. This is why when an entrepreneur is hiring contractors for their business, they make a risky move by hiring unincorporated contractors.
The second function of the payroll audit says virtual accountant is for the auditor to assess all of the personal benefits cash and non-cash benefits that the business owner has taken out of the business. They are looking to see if an entrepreneur has claimed all personal benefits, or if they need to issue additional amounts.
Virtual accountant says it is very easy for an entrepreneur to do two things in order to simply avoid triggering a payroll audits in their business. The first one is simply to file on time, even if they cannot pay on time, they can avoid triggering audits, penalties and late fees. The second thing that they can do is pay all remittances on time. This will prevent a payroll audit that will have an auditor checking and entrepreneurs grey areas, calling into question all of the cash and non-cash benefits they may have taken out of their business and not claimed.