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An entrepreneur should understand that the purpose of a T4 and T5 is to record the money that is coming out of the business for personal or non-cash benefits. Any time an entrepreneur takes money out of the corporation, they must account for it either through dividends or salary. The virtual accountant says a salary must be recorded on the T4 slip, while the dividends must be recorded on the T5 slips.
However, it is not just important for an entrepreneur to understand that T4 is for salary and T5 is for dividends, but by understanding what the difference is in salary and dividends can help an entrepreneur ensure that they are filing appropriately. A dividend is only available to pay business owners and shareholders. And an entrepreneur can only disburse dividends if their business has turned a profit. The good thing to keep in mind with dividends says virtual accountant, is that these are not considered employment income, and not considered an expense of the business.
Salary, on the other hand, is considered employment income which is taxable. Business owners and all armís-length employees will get paid either salary or wages. As these are all recorded on the T4 slips, the entrepreneur and every employee that gets paid will get issued a T4 slip. Also, for all of the pages that are accounted for on a T4 slip, an entrepreneur should ensure that the appropriate source deductions are being withheld from the employees and the entrepreneur’s paycheck. One of the biggest mistakes an entrepreneur can make is by thinking that since they are an entrepreneur, they do not need to pay source deductions.
Once an entrepreneur understands want to the T4 and T5 slip is recording, the next thing they need to understand says virtual accountant is the filing deadline. Since these slips are needed both by their employees and Canada revenue agency in order to properly do their income taxes, the filing deadline is the last day of February. If an entrepreneur misses this deadline, he could potentially trigger a payroll audit.
To help entrepreneurs avoid getting a payroll audits in their business, entrepreneurs can understand what a T4 and T5 slip is, and when the slips need to be filed. This can be significant in helping an entrepreneur avoid having additional payments that can be very difficult for them to manage that can negatively impact their business.
Even though many business owners are extremely good at providing the product or service that their business offers says virtual accountant, that does not necessarily make entrepreneurs well-versed at how to run that their own business. As Michael Gerber, the author of the E myth has said: ìthe fatal assumption is: if you understand the technical work of business does, you understand a business that does that technical work.î
An entrepreneur should ensure that they are filing their T4 and T5 slips properly and on time to avoid a payroll audit. However virtual accountant says it is also important that an entrepreneur ensures that they are submitting payroll remittances properly as well for the amounts listed on their T4 slips. If an entrepreneur either underpays or misses the payment, that can also trigger a payroll audit from Canada revenue agency.
While the monthly deadline for entrepreneurs to submit payroll remittances to Canada revenue agency is the fifteenth day of the following month, the recommendation is for entrepreneurs to not wait that long to submit remittances. If an entrepreneur gets into the habit early on in their entrepreneurship of paying CRA at the same time that they run payroll, not only are they ensuring that they are making payments on time, there are also saving time by issuing the payment at the same time they do the calculation, they can also avoid forgetting to make a payment that could be significantly detrimental to their business.
The virtual accountant says that if entrepreneurs miss a payment on or before the fifteenth day of the month, it could trigger a payroll audit. However, they need to understand that if they are under paying the payroll remittances every month, they may not hear from the Canada revenue agency. Because they will not calculate the number of source deductions that an entrepreneur owes until they file their T4 slip. All CRA will keep track of is if payments are coming in on time every month. Therefore, if an entrepreneur has been short paying Canada revenue agency, they will receive warnings of it, instead, they will either in the best case scenario be sent a letter indicating that the entrepreneur has underpaid and requesting them to pay it in full immediately. And the worst-case scenario is it will trigger a payroll audit. Therefore it is of paramount importance that a business owner ensures that they are calculating the source deductions properly.
Virtual accountant says that an entrepreneur can avoid triggering a payroll audit in their business as long as they are filing their T4 and T5 slips by the last day of February, as well as ensuring that they are submitting payroll remittances on or before the fifteenth day of the month. If they can do this, they can ensure that they will never have to face a payroll audit that may end up in having them assessed additional taxes and penalties.
