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

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Virtual Accountant | What Happens If T4 And T5 Slips Get Filed Late

As entrepreneurs are new in business, they should learn what taxes need to be paid and what needs to be filed early on in their entrepreneurship according to virtual accountant. The reason why is because entrepreneurs can actually trigger not only late payments and interest charges if they have made mistakes in filing taxes, but also they could cause an audit to be triggered that could end up costing an entrepreneur far more. As Michael Gerber, the author of the E myth has said: ìthe fail assumption is if you understand the technical work of the business, you understand a business that does that technical work.î Most entrepreneurs understand income taxes but do not understand other filings and other taxes that might have different deadlines. Such as a T4 and T5 slips. It is important that entrepreneurs learn what these areas early in their entrepreneurship as possible, so they can ensure their avoiding additional charges and potential audits.

First, an entrepreneur needs to understand what a T4 and T5 slip is, and what it is recording to Canada revenue agency. Every time an entrepreneur takes money out of their business, they can only take money out in two separate ways: via a salary which is recorded on a T4 slip, or a dividend which is recorded on a T5 slip.

An entrepreneur should also understand the difference between dividends and salary. Dividends are only payable to shareholders and owners because this is the way of corporation disperses profits. These amounts do not have source deductions withheld from them, and are also not considered an expense of the business and do not show up on the income statements. Virtual accountant says salary is considered employment income, and not only do entrepreneurs themselves can get paid in salary or wages but so do their employees. Since employment income is considered an expense of the business, it does show up on the income statement, and an entrepreneur needs to ensure that for every paycheck that they issue, the right source deductions have been propelled from those employees and sent off to Canada revenue agency.

Once an entrepreneur files their T4 slips, CRA will know how much they have paid in employment income, and how much percentage they have need to send to CRA for the employer and employee portion of CPP as well as what percentage of EI and income tax should have been sent. Virtual accountant says payroll remittances are due the fifteenth day of each month, in the month following payroll. While this is the filing deadline, virtual accountant recommends that entrepreneurs never wait until the fifteenth day of the month to submit to remittances. If business owners get into the habit of submitting remittances at the same time as issuing payroll, they will never run the risk of missing a payment.

The only thing that entrepreneurs need to remember after that, is that T4 and T5 slips need to be filed by the end of February. By doing this, entrepreneurs are completely avoiding payroll audits in their business.

Virtual Accountant | What Happens If T4 And T5 Slips Get Filed Late

One of the most important things that entrepreneurs can ensure they do in their business is avoided filing any reports to Canada revenue agency late, and ensure that all taxes are being paid in full and on time says virtual accountant. This is true when it comes to T4 and T5 slips and payroll remittances as well. There is many things that an entrepreneur can do in order to avoid being hit with a payroll audit, however, if an entrepreneur has not submitted their T4 or T5 slips on time, or have fallen behind in their payroll remittances to Canada revenue agency, they may find themselves in the middle of the payroll audit.

One of the first things that an entrepreneur should do if they are going to be audited, is going through their bank accounts themselves in order to assess their own personal benefits both cash and non-cash. But they should be doing is ensuring that any time they have taken money out of their business, or their business has paid for something personally, that it has been attributed to a T4 or it T5 slip. Virtual accountant says if there are transactions that have not been claimed properly, then an entrepreneur needs to claim that as a shareholder loan for the auditor gets there. That way, when the auditor is reviewing their statements, this will speak to the credibility of the business owner that they have claimed but transactions should have been included initially. This will help the auditor give the entrepreneur the benefit of doubt, and not assess grey area transactions as personal benefits.

Virtual accountant says that once the auditor gets there, they are going to ask the entrepreneur for their monthly bank statements for the past year as well as the general ledger of their business. They are looking at the bank statement in order to see what amounts were paid to individuals rather than businesses. They’re trying to ensure no employees were actually paid without having the right source deductions withheld from their checks and the amounts being claimed on the T4. If an entrepreneur has hired any unincorporated businesses for any reason, these transactions could be at risk for being considered paying employees instead of businesses. For example, says virtual accountant if an entrepreneur hires a window washer once a month to wash the exterior windows of their building, and they make the check payable to that window washer personally, Canada revenue agency they consider these staff, that an entrepreneur needs to pay source deductions for.

The next thing that the auditors going to be looking for according to virtual accountant is all personal benefits that an entrepreneur has taken from the business. Comparing these two their T4 and T5 slips, and auditor wants to ensure that all transactions are accounted for. If not, an entrepreneur will have to pay taxes on those amounts as well as penalties and late charges. The more instances there are, the more an auditor is more likely going to consider grey area transactions personal expenses rather than a business expense.

Entrepreneurs can simply avoid this issue by ensuring that they are filing their T4 and T5 slips by the last day of February at the latest, and ensure that they are not only paying payroll remittances on time but in the correct amount as well. By doing this, entrepreneurs can avoid a payroll audit altogether.