Young Associates is thrilled to be partnering with WorkInCulture to launch Take the Lead: Principles for Administrative Leadership for the Arts, a new two day seminar series for increasing managerial and governance skills in arts administration. Running October 12 & 13, 2017, instructors from Young Associates and WorkInCulture will deliver sessions on understanding financial statements, payroll, WSIB, and HR. Get more details here.
By Heather Young
According to the Canada Revenue Agency, fees for services provided by contract staff should be reported on a T4A slip in Box 048.
CRA’s Guide – titled RC4157 Deducting Income Tax on Pension & Other Income, and Filing the T4A Summary – directs payers to: “Enter any fees or other amounts paid for services. Do not include GST/HST paid to the recipient for these services.”
A couple of observations.
The CRA makes no distinction regarding who provided the services. Many companies assume T4A slips are for freelancers – but that’s not what the Guide says. An email to the Canadian Payroll Association’s InfoLine confirmed that incorporated businesses should also receive T4A slips.
And for sure HST registration makes no difference! Every year, clients’ contract staff tell Young Associates bookkeepers that they don’t want a T4A slip because they have an HST number. Whether or not a contractor charges HST is irrelevant to the payer’s T-slip obligation.
Make no mistake: this has nothing to do with individual preferences. Our job is to do our best to help our clients – the payers – comply with the Income Tax Act.
We hear all sorts of variations from payers too. Some companies are willing to issue T4As to freelancers who work under their own name but not to those who have a company name. Other organizations make apparently arbitrary decisions; for instance, that they’re willing to issue T4As to actors but they don’t want to generate slips for technicians.
Indeed, there’s a lot of confusion out there – and, to boot, a tacit acknowledgement on the part of the CRA that the T4A requirement is unclear.
CRA’s Guide RC4157 goes on to say: “Currently the CRA is not assessing penalties for failures relating to the completion of box 048.”
We don’t take this as a blanket pass for organizations to do whatever they want – and we don’t think you should either.
The wisdom from the Canadian Payroll Association – experts in the field – is that organizations should implement a process for issuing T4A slips to contractors so that when the CRA provides clear guidance they are able to comply immediately.
We can add to this some experience of payroll audits, where CRA examiners have scrutinized companies’ practices around T4A slip preparation.
Young Associates’ position is that clients need to work with their auditors and boards to interpret the Guide as best they can for their own situation. We always advocate for CRA compliance – and, if anything, for a more conservative interpretation that protects you from unwelcome attention from the government.
We appreciate comments on this post, although please note that Young Associates specializes in services for organizations. If you are an individual with a question about a T4A issue related to personal tax, we suggest that you contact a bookkeeper or accountant who prepares personal tax returns.
Bonuses are compensation and, as such, are taxable. Here’s a link to the Canada Revenue Agency’s Special Payments Chart. It lays out the requirements for source deductions on an array of payments, including bonuses.
By Heather Young
From time to time I will share stories from the field – names and details obscured!
One company went through a nerve-wracking time when a former worker – who had been hired on a fee-for-service contract as a freelance consultant – tried to claim EI and insisted to the folks at HRSDC that s/he had been an employee.
The government responded by notifying the company that they were responsible for remitting both the employer and the employee portions of EI and CPP for the duration of the contract. It was up to the company to appeal this decision, and prove that the worker had been properly treated as a freelancer.
To help the organization prepare its appeal, the government provided a lengthy questionnaire, much of it based on concepts you can read about in the CRA publication Employee or Self-employed?, published online.
The company also did some research, including checking the former worker’s social networking activities, where the individual clearly self-identified as a consultant for hire. It’s unclear whether that influenced the happy ending – but I can tell you that in at least one comparable case the defendant’s Facebook page did him in.
After many hours of work and months of waiting, the company finally received the happy news that their appeal was successful.
The CRA ruling made a strong effort to be balanced, stating that “the parties did not share a common intention as to the worker’s employment status” – although the company feels the status was always clear. It outlined all the terms of employment in some detail, noting that the level of “control”, or supervision, of the employee and ownership of tools and equipment were neutral factors – they could have been interpreted to either party’s benefit. The fact that the worker was providing services personally and was not able to subcontract assigned work was deemed consistent with the worker’s contention that s/he was an employee, but the fact that the worker was free to take on other projects for personal profit, and promoted him/herself as a freelance communication consultant suggested to the CRA that s/he was “embarking on a business enterprise on his/her own account.” Weighing all factors, the CRA ruled in the company’s favour: but in reading the written ruling, it looks like it was a close call.
Arts organizations and charities secure all sorts of services on part-time, part-year contracts. It’s worth the effort to research how a particular position should be treated (employee or self-employed?), and to be crystal-clear with the worker both verbally and in a written contract.