Virtual Accountant | What Are T4 And T5 Slips Recording
As an entrepreneur starts their first business says virtual accountant, while they might be very good at providing the product or service that their company sells, but that does not necessarily mean that they know how to efficiently run a corporation. Entrepreneurs need to learn right away in their business of all of the different taxes they need to pay and reports they need to file so that they can avoid triggering audits, or getting into trouble with Canada revenue agency. This is very true when it comes to the T4 and T5 slips of the business. If an entrepreneur has and filed them properly, or on time this can trigger a payroll audit in the business. That can cause all grey area transactions to file under heavy scrutiny and could have put on entrepreneurs business at risk of having to pay additional taxes.
In order to help an entrepreneur ensure that they are filing their T4 and T5 slips properly, they need to be aware of what those slips are recording for the Canada revenue agency. Any time an entrepreneur takes money out of their business, a virtual accountant says they have to take and out of the corporation in one of two ways either through a salary, which is recorded on the T4 slip or a dividend, which is recorded on a T5 slip.
They need to ensure that they are filing these slips with Canada revenue agency by the last day in February. This way, CRA will be able to calculate the source deductions that an entrepreneur should have submitted throughout the year for the salary and wages of not only the entrepreneur but of their staff. Because any salary or wages that comes out of the business is considered employment income, an entrepreneur has to ensure that the right source deductions are being withheld from all employment income including the entrepreneurs. If an entrepreneur fails to file these slips on time, Canada revenue agency will not be able to calculate the number of source deductions that an entrepreneur owes, and could potentially trigger a payroll audit for the entrepreneur. Therefore, it is extremely important that entrepreneurs ensure that they are filing their T4 and T5 slips on time.
When an entrepreneur files their T4 slips, Canada revenue agency will be able to see how much source deductions an entrepreneur should have been withholding from all of the salary and wages, and they will compare that to the amount of money that an entrepreneur has remitted. If they have submitted to little, that can cause problems. Therefore, when an entrepreneur is preparing their T4 slips for filing, if they notice that they have underpaid, they should make a payment right away, because they will have up until January 15 in order to catch up on anything outstanding.
My understanding of what is being reported on their T4 and T5 slips, and when it needs to be filed can help entrepreneurs ensure that they have paid the appropriate source deductions to Canada revenue agency, which can help them avoid getting in trouble with them or triggering an audit. This can help an entrepreneur stay cash flow positive in their business, and increase their chances of business success.
Virtual Accountant | What Are T4 And T5 Slips Recording
It is very important that entrepreneurs are ensuring that they are keeping very good track of all of the money that they are taking out of their business for personal benefits as well as non-cash benefits says, virtual accountant. The reason why, is so that they can ensure that they are educating the correct amounts on their T4 and T5 slips. By doing this, entrepreneurs can help keep accurate records, and that can help them avoid getting hit with a payroll audit in the future.
The first thing that entrepreneurs need to understand, is what the difference is between a T4 and T5 slip. And T5 slip is how an entrepreneur is going to record all of the money that they have taken out of their corporation as a dividend. Dividends are only payable to business owners and shareholders and are not considered an expense of the business. These are the only ways that the prophets of the business can get dispersed. It is also important to note that dividends do not get source deductions withheld from the amounts.
A T4 slip, on the other hand, is for an entrepreneur to record all of the salary that they have taken from their business. Salary on the other hand is considered an expense of the business, and it does qualify for having source deductions withheld from it. Not only can entrepreneurs claim salary, but any employees that they pay will also get a T4 slip as well as source deductions withheld from their wages.
An entrepreneur needs to be careful that they are calculating not only all of the money that needs to be attributed to their T4 and T5 properly but this source deductions as well. An entrepreneur needs to ensure that the CPP as well as employee CPP, EI and income taxes are being withheld from employee’s checks and sent off to CRA. The virtual accountant says not only does the correct amount have to be submitted, but an entrepreneur must meet the monthly deadline of the fifteenth day of the month. However, best practices indicate that an entrepreneur should not wait until the fifteenth of the month, in case something goes wrong and they are unable to make the payment if they wait to the last day then they will be late which could trigger penalties. A better scenario is for an entrepreneur to ensure that they are submitting source deductions to Canada revenue agency at the same time that they are calculating payroll.
By understanding what is getting recorded on their T4 and T5 slips, as well as when it needs to be submitted can help an entrepreneur ensure that they are staying on top of their business finances, and payments so that they can avoid triggering a problem with Canada revenue agency.