Every year, business owners are concerned about whether to issue a T4 or a T4A. Employees may work full-time, part-time, or only occasionally for business owners that employ a significant number of individuals. So, Taxant helps you determine who receives a T4 and who receives a T4A? What's the difference? How does it affect the employer and those who work for the employer? Let's discuss it further down.
Employee vs. Subcontractor
Identifying when a T4 (rather than a T4A) should be issued requires identifying whether a person is an employee or a subcontractor. When determining whether or not a person is an employee, the following factors are considered by Taxant in determining the difference:
- Control - the extent to which the business owner has influence over what work is done and how the worker does it. The greater the employer's influence, the more likely the worker is an employee.
- Tools and equipment - the amount of money invested by the worker or employer in the tools used to perform the underlying work. If the company provides the majority of the tools, the worker is most likely an employee. If it's the other way around, the employee is most certainly self-employed.
- Hiring assistance or subcontracting labour – Is it possible for the worker to subcontract work or recruit assistants? To the extent that the worker is able, they are most likely self-employed. In the other case, they are most likely an employee.
- Financial risk — the worker's level of financial danger. This could take the shape of specific costs incurred by the worker while providing the service that is not compensated by the company. Employees typically have no financial risk, however self-employed individuals face some financial risk because they incur costs before being compensated by the employer.
- Investment and management – the worker's level of responsibility for investment and management. These are signs of self-employment if the worker is required to make financial investments, hire and manage their own team, and has a well-established business presence. On the contrary, in cases, where little to no investment is required, the worker is most often an employee.
- Profitability - the degree to which there is ambiguity regarding the worker’s earnings and expenses. Profitability will most likely vary for self-employed workers. Employees, on the other hand, will experience little variation.
All of the above factors must be reviewed, and a subjective judgement must be made if a worker check several of the above boxes to be classified as an employee rather than self-employed. If the worker is an employee, the employer must follow all of the regulations that apply to employees in the province in which they work, deduct payroll taxes, CPP, EI, and contribute the employer's portion of CPP and EI.
What does a T4 resemble?
Here's an example of a T4 slip. The Year field specifies the year in which the revenue was earned. The box with the Employer's name contains information about the employer who is issuing the T4, and the box with the Employee's name and address should be addressed to the employee.
Keep the following boxes in mind:
Box 14: Displays the employment income earned by this employer during the fiscal year.
Box 16 shows how much money was put into the Canada Pension Plan.
Box 18: This section contains the employment insurance (EI) premiums that have been remitted to the CRA.
Box 20: Contributions to a Registered Pension Plan.
Box 22: This is the amount of income tax withheld from your pay throughout the fiscal year.
Box 44: Indicates whether or not you are a member of a union and whether or not you have paid union dues.
Box 46: Any philanthropic contributions made through the employer's revenues.
Box 42: This section displays the commission income earned from this job.
What exactly is a T4A?
A T4A slip resembles a T4 slip in appearance. T4As are typically issued when payment exceeds $500. It applies to self-employed commission income, pensions, annuities, service fees, scholarships, and other sources of income.
In the recipient's name and address section, this has the tax year, Payer's name, and Payee's details, similar to a T4 slip.
Box 020: If the Payee is self-employed and receives commission revenue, this is where it appears.
In addition, the beneficiary must file form T2125 on their tax return, which is a statement of commercial or professional activities. Please keep in mind that this is the net sum, not including GST/HST.
Box 022: Any income tax withheld for this T4A slip.
Box 048: Any costs for services rendered, such as box 020. This is also a net figure, as it excludes GST/HST.
105th Box: This box covers any scholarships, fellowships, bursaries, and study grants (awards) that students, in general, may have received from their school or university. If they received any such payments from their institute of education, many local and international students may receive a T4A slip.
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