What Information Is In T4 And T5 Slips | Virtual Accountant
Business owners may find themselves in a lot of trouble if they have not filed their T4 or T5 slips properly, or on time says, virtual accountant. The slips are extremely important because they tell Canada revenue agency how much money an entrepreneur has taken out of their business, as well as how much money they have paid staff members in their business. This can help Canada revenue agency figure out how much an entrepreneur should have paid them for source deductions, and it is important for employees to have copies of their slips so that they can appropriately do their taxes as well.
It is important that entrepreneurs understand that these slips are due every year by the last day of February. These are so important, that entrepreneurs may be facing a payroll audit if they fail to file these slips on time. Payroll audits can be significantly detrimental to an entrepreneur and can cause them to have to pay additional amounts of taxes as well as interest. They can avoid this simply by ensuring that they are filing these important documents on time.
A T4 is where an entrepreneur is going to record of all of the employment income that has come out of their business. This is both for any salary that an entrepreneur has claimed as well as all of the wages that an entrepreneur has paid their staff members. The important thing to note is that all employment income requires source deductions being withheld from it. An entrepreneur should ensure that they know how much CPP, EI and income tax should be withheld, and submitted to the Canada revenue agency.
T5 slips, on the other hand, are only applicable to business owners and shareholders because they record the dividends that an entrepreneur would disburse in their business. Since dividends are the way an entrepreneur disperses the prophets of their business, an entrepreneur is only able to pay themselves or their shareholders in dividends if their business has profited that amount. It is important to also note says virtual accountant that dividends are not subjected to source deductions.
In addition to filing their T4 and T5 slips properly, an entrepreneur also needs to ensure that they are submitting their payroll remittances on time to the Canada revenue agency. Virtual accountant says that the fifteenth day of the month is that for all business owners. Any payroll amounts that they dispersed in the previous month, will have the source deductions due on the fifteenth day of the following month. While CRA will notice if an entrepreneur misses a deadline, and may contact the entrepreneur. They typically will not notice if an entrepreneur has underpaid, and therefore it is extremely important for business owners to ensure that they are submitting the correct amount every month, to avoid being short at the end of the year.
By learning how to file their T4 and T5 slips, and filing them on time as well as ensuring that they filed the appropriate source deductions, entrepreneurs can avoid triggering a payroll audit that could cause more financial difficulties in their business.
Virtual Accountant | What Information Is In T4 And T5 Slips
While many entrepreneurs understand their corporate tax deadline, a virtual accountant says many entrepreneurs do not remember the filing deadline for their T4 or T5 slips. This can create problems, if an entrepreneur files them improperly, files them late or not at all. This could end up triggering a payroll audit for an entrepreneur which will cause all grey area transactions to be heavily scrutinized by an auditor. This can result in an entrepreneur being assessed for additional taxes, penalties as well as interest charges. 29% of all entrepreneurs say that the reason why their business failed is that they ran out of money, and facing a payroll audit can be financially devastating to a business. To avoid this, entrepreneurs should simply ensure that there filing on time every year.
Entrepreneurs that are at risk of facing a payroll audit can ask their virtual accountant to help them with a few things in order to minimize their chances of being audited. The first things they can do is if an entrepreneur is aware that they have underpaid Canada revenue agency for payroll remittances, but they can do is reclassify their own income as dividends so that all of the payroll remittances they have submitted for themselves can be then put towards the source deductions for their employees. This may be enough for a business owner to avoid being short on their payroll remittances.
Another thing that an entrepreneur can do is have their virtual accountant go through all of their personal transactions in order to ensure that everything has been attributed to the T4 or T5 slips, and if not, that can be then attributed to their shareholder loan account. This way, if they are audited, the auditor will see that the entrepreneur is trying to be reasonable and transparent on all transactions. This may because the auditor to be lenient when reviewing those grey area transactions and help an entrepreneur save significant amounts of additional taxes.
One thing for entrepreneurs to keep in mind is if they are facing a payroll audit, the entrepreneur will be looking into all payments that went to individual people instead of businesses. They are going to try to determine if these should be considered employees of the business, and therefore have source deductions taken off of their payments. This means that any time an entrepreneur has paid an unincorporated business, at risk. Since unincorporated businesses operate under the business owners’ personal name, every time an entrepreneur has hired an unincorporated company, an auditor may assess those payments as staff. For this reason alone, entrepreneurs should either avoid hiring unincorporated businesses or avoid a payroll audit at all times.
For an entrepreneur to simply avoid a payroll audit, they need to ensure that there filing their T4 and T5 slips on time, by the last day of February, and ensure that they do not owe Canada revenue agency any source deductions. By paying in full all the time and on time can help an entrepreneur avoid ever facing a payroll audit.