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E-Myth – “Why most small businesses don’t work & what to do about it”

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What Are T4 And T5 Filing Deadlines | Virtual Accountant

It is extremely important that entrepreneurs understand what taxes are due and when says virtual accountant as well as what needs to be filed and when. As Michael Gerber, the author of the E myth has said: ìthe fatal assumption is if you understand the technical work of the business, you understand a business that does that technical work.î Entrepreneurs often get into business because they are passionate about the service or product that their business provides, but are less experienced in running a business. One of the first things that entrepreneurs should learn is what T4 and T5 slips are, and when they need to be filed. By knowing this, entrepreneurs can avoid triggering a payroll audit that could end up costing them a significant amount of money.

For an entrepreneur to understand when to file their T4 and T5 slips, virtual accountant says they need to understand what these slips are recording. These slips are in order for an entrepreneur to claim to Canada revenue agency much money has been taken out of the business to pay staff and business owners. A T5 slip is for an entrepreneur to claim all of the dividends that have been taken out of the business either by business owners or shareholders. Since dividends are the way that entrepreneurs disburse profits, there is no source deductions needed to be taken off of these amounts.

T4 slips, on the other hand, is for all salary or wages disbursed to anyone from the corporation. This is also called employment income. Virtual accountant says not only do business owners get to claim this but any employees as well. Employment income also needs to have the appropriate source deductions withheld from checks and submitted to the Canada revenue agency. All employment income needs to have the correct employer CPP, employee CPP, EI and income taxes are taken off of the check and sent on to CRA.

Once an entrepreneur understands what their T4 and T5 slips are, virtual accountant says they should understand that these slips are due on the last day of February every single year. Not only do they need to ensure that these are filed by that date, but they also need to ensure that they have appropriately paid their source deductions as well. By the time CRA gets the T4 slips, they will see how much source deductions an entrepreneur should have remitted to them, and if a business owner owes any additional payments, the best-case scenario is that CRA will issue a letter requesting payment in full immediately. However, the worst-case scenario is that the Canada revenue agency will hit the business owner with a payroll audit.

In order to avoid a payroll audit, virtual accountant says all entrepreneurs need to do is ensure that they are paying source deductions by the fifteenth day the following month that payroll was submitted, and to ensure their T4 and T5 slips are filed by the end of February. By doing this, entrepreneurs can avoid ever having to go through a payroll audit with Canada revenue agency.

Virtual Accountant | What Are T4 And T5 Filing Deadlines

It is extremely important that entrepreneurs understand that not only do they need to file their T4 and T5 slips on time, says virtual accountant, but they also need to ensure that they are submitting the appropriate amount of source deductions to Canada revenue agency. If entrepreneurs fall short of their payroll remittances, it could trigger a payroll audit that could cost them far more money than they might have actually owed in the first place. Since 29% of all failed entrepreneurs say the reason they failed is because they ran out of money, avoiding having to pay additional taxes and interest is extremely important to most entrepreneurs.

Virtual accountant says one of the best practices that an entrepreneur can get into the habit of doing is to not wait until the fifteenth day of the following month to submit payroll remittances to Canada revenue agency for all employment income. If they wait until the deadline to pay, they are not giving themselves any additional time for problems, which may cause them to avoid meeting the deadline. If they get a flat tire on their way to work on the fifteenth day of the month, that could cause them to miss the deadline. Instead, if entrepreneurs simply get into the habit of ensuring that they are submitting payroll remittances to CRA at the same day that they are issuing payroll to their staff, they know that they will never be late.

It is also very important that an entrepreneur is ensuring that they are withholding the correct amount of source deductions from their own check as well as all of the checks of their employees. They need to ensure that there is an employer portion of CPP as well as the employee portion of CPP, in addition to EI and income tax. If there calculating the wrong amount, that can also trigger an audit says virtual accountant.

If an entrepreneur is facing an audit, the auditor is going to ask him for a general ledger as well as a bank statement. Virtual accountant says that the auditor will be looking for all transactions that went out to individuals. Their goal is to see if these were legitimate business expenses, or if these were in fact employees that were getting paid without having the appropriate source deductions taken from their checks. The second thing that an auditor will be looking at is all of the transactions the entrepreneur has taken out of the business personally. If there are transactions that were not claimed on a T4 or it T5 slips, an entrepreneur will be assessed with having to pay additional taxes, interest, and penalties.

A payroll audit can cause an entrepreneur to pay additional amounts in taxes for grey area transactions as well as having unincorporated business being claimed as staff. However, entrepreneurs should understand they can simply avoid this by ensuring that they are filing their T4 and T5 slips on time, and ensuring that they are paying the appropriate amount of payroll remittances well before the deadline. By doing this, entrepreneurs can ensure that they are avoiding a payroll audit.