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When entrepreneurs are new in their business, virtual accountant says it is important that they learn what filings need to happen by what deadline. By learning this, entrepreneurs can avoid late filing penalties, as well as paying additional interest and even avoiding being audited by the Canada revenue agency. There is several things that entrepreneurs can keep in mind that can help them avoid triggering payroll audits.
The first thing that an entrepreneur needs to learn when avoiding a payroll audits is that they need to file their T4 and T5 slips on time. These slips need to be filed by the end of February on the last day of the month. Virtual accountant says that in order to help entrepreneurs file they slipped on time, they need to understand what is being recorded on those slips.
When an entrepreneur pays themselves from their business, they can take their money in two different ways: either through taking a salary or in dividends. Salary gets noted on a T4, where the dividends get reported on the T5. Therefore, T4 and T5 slips are an entrepreneur informing the government what money has come out of their business for those things.
Not only can entrepreneurs take salaries themselves, but all of their employees take salaries, and all employees that take employment income from the business get a T4 slip. This includes business owners as well as employees. The reason why this is important to note is that all employment income must also have the appropriate source deductions withheld from the paychecks. Not just of the employee says virtual accountant but also the business owner. The business owner needs to ensure that they are withholding the correct percentage of the employer portion of CPP, the employee portion of CPP, as well as employment income and income tax.
Dividends, on the other hand, says virtual accountant is only payable to owners and shareholders of the corporation. Although since these are disbursements of the prophets of the business, source deductions do not need to be taken off of these amounts.
Therefore, when an entrepreneur finishes their year and claims to Canada revenue agency how much they have paid in both employment income and dividends, this is what creates the T4 and T5 slips. Because personal income taxes are due in April, an entrepreneur must ensure that they have filed their T4 and T5 slips by the end of February, so that CRA can have the appropriate amounts, as well as their employees.
If an entrepreneur fails to have their T4 and T5 slips filed in time, virtual accountant says that this could potentially trigger an audit by Canada revenue agency. When this happens, an entrepreneur will need to show all of the transactions in their business over the past year, to ensure that they have appropriately allocated all employment income and dividends appropriately. This can cause an entrepreneur to have to pay additional amounts in taxes as well as interest and late filing fees. If an entrepreneur wants to avoid this problem, they can simply ensure that they are filing their T4 and T5 slips on time every year.
Most entrepreneurs understand that they have to withhold payroll taxes from the paychecks of their employees says virtual accountant. However, what many entrepreneurs may not know, especially as they are new in business is that they need to remit these amounts to Canada revenue agency on time, or else they could potentially trigger a payroll audit from Canada revenue agency.
Virtual accountant says it is extremely important that entrepreneurs know that there is a deadline every month when entrepreneurs need to have their payroll remittances sent to Canada revenue agency. The fifteenth day of each month is the deadline, and all payroll amounts from the previous month will have the source deductions do the fifteenth day of the following month. However, best practices for the entrepreneur to not wait until the deadline but instead pay Canada revenue agency the same time that they are running payroll. If they do this, they will never risk paying their payroll remittances late.
It is also extremely important that entrepreneurs are withholding the correct percentage from their employee’s checks as well as their own salary. If they end up short in source deductions, virtual accountant says they have until the fifteenth day of January to submit all amounts that they have shorted CRA. If they are not able to pay the correct remittances by January 15, they could potentially trigger a payroll audits.
If an entrepreneur is facing a payroll audit, they should expect that an auditor will ask them to provide copies of their monthly bank statements for the past year as well as their general ledger. But the auditor is looking for says virtual accountant is any transactions that went to individuals rather than businesses. They are looking at this to verify if these are actually employees that an entrepreneur should have collected source deductions from and issue to T4 for.
The second thing that an auditor will be looking for is to ensure all payments that an entrepreneur took for themselves, had a T4 or it T5 issued for that amount. Any additional amounts that the auditor finds, will be assessed for taxes as well as interest. This means that any grey area transactions that might look like they are personal, there actually business could be assessed personally, which would cause the entrepreneur to pay significantly more in taxes than they otherwise would have been paying.
If an entrepreneur wants to avoid being assessed additional taxes through payroll audit, virtual accountant says that there are two main things that they can do that will help them completely avoid payroll audits. The first thing is for an entrepreneur to ensure that they are filing their T4 and T5 slips on time. Even if they cannot afford to pay all taxes on time, they should still file, so that they can avoid being hit with additional penalties. The second thing is for entrepreneurs to ensure that they are remitting source deductions to Canada revenue agency on time. By doing these two things, entrepreneurs can ensure they will not be triggering a payroll audit.
