Information on Filing T4s/RL-1s and T4As for Small Business Owners
When I was employee, I never really gave much thought to the T4 (and the Quebec equivalent RL-1) process. I knew that sometime around February an envelope would appear on my desk with a tax document that I would need to reflect on my tax return. I suppose I thought that someone, somewhere pressed a button and the T4s were generated. When I became a small business accountant, who was now either responsible for preparing this information or providing guidance to my clients, I realized that the process was somewhat more complicated.
Let’s discuss some of the key aspects of T4s that small business owners and administrators should know:
What is a T4 (RL-1)?
When you hire employees, in addition to paying monthly remittances to CRA (and RQ), you are also required to prepare a tax document for the full calendar year to give to employees so that they can report their wages on their tax returns. These tax documents (also called tax slips) are referred to as a T4 (and an additional slip called the RL1 in Quebec). The T4 is essentially an aggregation of amounts paid and deducted during the year and include and deductions including
Employment income includes bonuses, vacation pay, tips and taxable benefits like car allowances provided to employees that cover personal use
Employment Insurance (EI),
Canada Pension Plan (CPP)
Federal Income Tax,
Other items such as taxable benefits, company pension plans etc.
An RL1 also includes the following:
Quebec Pension Plan (QPP)
Quebec Income Tax
Parental insurance (QPIP)
Health insurance premiums paid by the employer
Other items such as taxable benefits etc.
Deadline
The deadline for the submission of T4 and T5 slips and summaries is February 28th. In Quebec the same deadline applies to RL-1 and RL-3 slips and summaries
How to Prepare a T4 and RL-1?
There are several ways to fill out your T4 forms:
If preparing one or two slips, you can use the fillable forms provided by the CRA. See link to information that you need to prepare the T4 slip . Keep in mind that when the forms are submitted manually, a T4 summary will also have to be prepared. No summary is required when slips are filed electronically. There is also a guide for the preparation of RL-1 slips for Revenue Quebec
Employers preparing more than 50 slips must file their information electronically.
Two copies of the T4 (and RL-1) slip have to be provided to the employee either via mail or in person.
If you have a payroll provider , they will often prepare and submit the T4 slip and summary on your behalf. When in doubt it is important to confirm this with your payroll provider. Alternatively, they will provide you with all the necessary information in an easy to use format.
Certain accounting software like QuickBooks and Simply Accounting generate the forms and the information for the summaries. You then need to submit them by following instructions provided by the accounting software. Also refer to my article on how to file your T4 with Quickbooks Desktop. QuickBooks Desktop also allows you to directly efile the T4 and RL1 slips.
For federal T4 submissions to CRA, if you are e-filing slips directly from your accounting software , you need to get a web access code from CRA.
You can also use CRA my business account webforms to submit your T4s.
For Quebec RL1 submissions to Revenue Quebec, you can use RQ My Business Account (Clic Sequr)
If you have more than a few returns it might make sense to use a Canadian tax form software which can be found through a web search.
The process for preparing the Quebec slips and summaries (RL-1s) is very similar to submitting them to CRA. The major difference is that regardless of whether you are manually submitting the RL-1 slips or efiling them, you are required to complete and submit the summary. Usually there will be a balance owing representing 0.07% of the gross salary (up to a maximum of $83,500 in 2020) which is payable, at the end of the year, to the CNT (commission des normes du travail). 3rd party payroll providers, while doing everything else, often do not submit this summary so it is very important to verify whether you need to do this.
If you are unsure about the process, it might be prudent to have your accountant take care of this for you.
Other Considerations:
Certain types of income do not require a T4 slip including lump sum payments, annuities, fees to non-residents under specific circumstances. A full list can be found here.
In Quebec health insurance paid by the employer on behalf of the employee is taxable. This needs to be reflected in employment income as well as Box J of the RL-1.
Withdrawals by owners of an unincorporated (registered) business do not require a T4 slip as they are taxed on the net profit of the business. Instead sole proprietors and partners must fill out the T2125 which is included in the personal tax return.
Penalties for not filing the T4 return by the deadline of February 28th ranges between a minimum of $100 for less than 5 returns to $7,500 for those with over 10,000 returns.
T4s do not have to be prepared for remuneration less than $500 unless you provide group term life insurance benefits which have to be reported regardless of the amount.
In Quebec you are also required to prepare a year end CNESST declaration if your business has employees that are not directors. The deadline is March 15th.
What is a T4A?
A T4A, which is often confused for a T4, is slip to capture various types of income that are not reflected on a T4. For small business owners, a T4A is usually prepared for self employed individuals and contractors who provide services and are not employees.
Non employment income type payments made to individuals should be reported on a T4A slip. These include commissions paid to self-employed individuals, lump sum payments, pensions etc. A full list of the types of income and the corresponding codes
Submission of slips and corresponding summaries (if filing manually) are due to the CRA by February 28th. The same deadline applies for distribution of slips to the relevant recipients.
Details on preparing the slips and access to forms can be found at the CRA Website here
In Quebec there is no exact equivalent to the T4A slip. Instead these amounts are often included in Box O of the RL-1 slip. Please refer to the Revenue Quebec Guide with reference to Box O for further details
Employers have the burden for preparation and submission of T4 and T4A slips, so it is important that small business owners have a fundamental understanding of the process. If you only have a handful of salaried employees the process is fairly straightforward. It does however start to get a little more complicated once you have other non-salary type items including taxable benefits and group term benefits, so make sure you do it correctly and on time.
Ronika Khanna is an accounting and finance professional who helps small businesses achieve their financial goals. She is the author of several books for small businesses and also provides financial consulting services.
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Ronika Khanna is an accounting and finance professional who helps small businesses achieve their financial goals. She is the author of several books for small businesses and also provides financial consulting services.
Subscribe to our biweekly newsletter to receive articles, tips, tools and special offers for small businesses.