T4 vs T4A – What’s the Confusion?
There is a common confusion each year among business owners understanding when to issue a T4 vs T4A. Business owners who employ several individuals may have staff working full-time, part-time, or once-in-a-while. So, to whom do we issue a T4, and to whom a T4A? What’s the difference? How does it impact the employer and those who work for the employer? Let’s discuss this below.
Employee vs Subcontractor
Determining when to issue a T4 (vs T4A) requires determining whether an individual is an employee vs subcontractor. The following factors come into play to determine if an individual is an employee:
- Control – the degree to which the business owner exercises control over what work will be done and how it will be done by the worker. The more control exercised by the employer, the more likely that the worker is an employee.
- Tools and equipment – the extent to which the worker or the employer has invested in the tools that are used to perform the underlying work. If tools are primarily provided by the employer, then the worker is likely an employee. The worker is likely self-employed if it’s the other way round.
- Subcontracting work or hiring assistants – Can the worker subcontract work or hire assistants? To the extent the worker can, they’re likely self-employed. In the opposite situation, they’re likely an employee.
- Financial risk – the degree of financial risk taken by the worker. This could be in the form of certain costs that are incurred by the worker in delivering the service that is not reimbursed by the employer. Typically, employees have no financial risk and self-employed individuals carry some financial risk by incurring costs in advance of getting paid by the employer.
- Investment and management – the degree of responsibility for investment and management held by the worker. If the worker is required to make capital investments, hire and manage their staff, and has an established business presence, these are indicators of being self-employed. In the opposite scenario where there is little to no investment required, the worker is likely an employee.
- Opportunity for profit – the extent to which there is uncertainty about the proceeds and expenses from work. Self-employed workers will likely have some variability in their profit. Employees, however, will have little such variability.
All of the factors above need to be considered and a subjective determination needs to be made if a worker checks several of the boxes above to be categorized as an employee vs being self-employed.
If the worker is an employee, then the employer needs to follow all the rules applicable to employees in the province they are in, deduct payroll taxes, CPP, and EI and contribute the employer’s portion of CPP and EI as well.
What does a T4 look like?
Here is what a T4 slip looks like. The Year box indicates which year in which the income was made.
The box with the Employer’s name shows the details of the employer issuing the T4 and the box with the Employee’s name and address should be addressed to the employee.
Important boxes to keep in mind:
- Box 14: Shows the employment income made during the year from this employer.
- Box 16: This is how much was contributed towards Canada Pension Plan.
- Box 18: Contains the employment insurance (EI) premium remitted to the CRA.
- Box 20: Any contributions made towards Registered Pension Plan.
- Box 22: This is the amount of income tax deducted from your pay during the year.
- Box 44: If part of any union, it indicates any union dues paid.
- Box 46: Any charitable donations made from the earnings made through the employer.
- Box 42: This shows the commission income made from this employment
What does a T4A look like?
A T4A slip looks very similar to a T4 slip. T4A is generally issued when the payment was made over $500. It applies in the case of self-employed commission income, pensions, annuities, fees for services, scholarships, and other income.
Similar to the T4 slip, this has the tax year, Payer’s name, and Payee’s details in the recipient’s name and address box.
- Box 020: If the Payee is self-employed and has received commission income, then this is where it shows up. The recipient is also required to file form T2125 on their personal tax return, which is the statement of business or professional activities. Please note that this amount should be the net amount, which does not include GST/HST.
- Box 022: Any income tax that was deducted for this T4A slip
- Box 048: Any fees for services provided, like box 020. And this amount is also a net amount only without GST/HST.
- Box 105: This box contains any scholarships, fellowships, bursaries, and study grants (awards) that may have been received by students in general from their school or university. Many local and international students may receive a T4A slip if they had received any such payments from an institute of education.
Did you know?
Employers who do not issue these slips on time will be subject to fines by the CRA.
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