T4 vs T4A vs T5 | Which Slip Do You Have to Issue?

The rule is simpler than it looks. Match the slip to the nature of the payment, not to the person receiving it.

All three are due by the last day of February following the calendar year, and all three carry penalties that start at $100 and climb fast. Below is who gets what, the grey zones that cause the most trouble, and how to fix a slip you have already filed.

To find an accountant in Coquitlam, you can visit the following page: Tax Accountant Coquitlam 

 

On this page

• Quick Answer: Match the Payment to the Slip
• T4: Employment Income
• T4A: Contractors, Fees, Pensions and Other Income
• T5: Investment Income and Dividends
• Real Scenarios From BC Businesses
• Filing Deadlines and How to File All Three
• Penalties for Late, Missing or Incorrect Slips
• How to Fix a Slip You Already Filed
• Frequently Asked Questions
• We File Your Year End Slips

Quick Answer: Match the Payment to the Slip

You paid	Slip	Threshold	Withholding required
Salary, wages, hourly pay, bonuses, taxable benefits	T4	Any amount	Yes, income tax plus CPP and EI
Director’s fees	T4	Any amount	Income tax and CPP, generally EI exempt
Retiring allowance or severance	T4	Any amount	Lump sum withholding rates
Fees for services to a contractor	T4A	$500	No
Pension, annuity, RESP or scholarship payments	T4A	Varies by box	Sometimes
Self employed commissions	T4A	$500	No
Dividends to shareholders	T5	$50	No
Interest paid to an individual	T5	$50	No
Payments to construction subcontractors	T5018	$500	No

The most common mistake by a wide margin is issuing a T4A to someone who was really an employee, because the withholding obligation is the expensive part.

 

T4: Employment Income

Who Gets One, and the Deductions You Must Withhold

Anyone who worked for you as an employee gets a T4, regardless of how little you paid them and regardless of whether they worked one week or all year. You issue a T4 if you paid remuneration, or if you were required to withhold CPP, EI or income tax.

Through the year you must:

• Withhold income tax at the rate the payroll tables produce
• Withhold the employee’s CPP contribution and match it as employer
• Withhold the employee’s EI premium and pay 1.4 times that as employer
• Remit all of it to CRA, normally by the 15th of the month following payroll

Taxable benefits belong on the T4 too. Personal use of a company vehicle, employer paid life insurance premiums, gift cards, most allowances and non arm’s length parking are all reportable, and forgetting them is the single most common payroll audit adjustment.

If you decide someone was a contractor and CRA later decides they were an employee, you become liable for both halves of the CPP and EI you never withheld, plus penalties and interest. That is the exposure the whole T4 versus T4A question is really about.

T4A: Contractors, Fees, Pensions and Other Income

Who Gets One, and the $500 Threshold

A T4A reports amounts that are income to the recipient but are not employment income. The main categories:

• Fees or other amounts for services, where you paid more than $500 in the year
• Self employed commissions over $500
• Pension and superannuation payments
• Lump sum payments, death benefits and certain annuities
• Scholarships, bursaries, research grants and RESP educational assistance payments
• Patronage allocations and some benefit payments

You do not withhold tax on fees for services. The contractor handles their own tax, CPP and instalments. That is precisely why CRA cares so much about the classification.

The Grey Zone: Subcontractors and CRA’s Position

Here is the honest state of affairs. The Income Tax Act requires a T4A for fees for services, but CRA has for years applied administrative relief and has not been assessing penalties for failing to complete the fees for services box in ordinary commercial situations. Many businesses therefore never issue T4As to their suppliers and nothing happens.

What this means practically:

• Issuing the T4A is the technically correct position and costs you nothing
• Not issuing it is extremely common and has not, to date, generated penalties in normal commercial arrangements
• Construction is different. If your primary business activity is construction, you must file T5018 slips for payments to subcontractors over $500. That one is enforced.

The area worth real care is not the slip, it is whether the person is a contractor at all. CRA looks at control over how and when the work is done, who supplies the tools, whether the worker can subcontract or hire helpers, the chance of profit and risk of loss, and how integrated the person is into your business. A single long term “contractor” who works only for you, on your schedule, using your equipment, is an employee no matter what the contract says.

T5: Investment Income and Dividends

Who Gets One, and the $50 Threshold

A T5 reports investment income: dividends, most interest and certain foreign income. The reporting threshold is $50 of investment income paid to a person in the year.

Two boxes matter for most private company owners:

• Eligible dividends, paid out of income taxed at general corporate rates, carrying a larger gross up and dividend tax credit
• Other than eligible dividends, paid out of income that received the small business deduction, carrying a smaller gross up and credit

Getting the classification wrong overstates or understates the shareholder’s personal tax and can trigger Part III.1 tax on excessive eligible dividend designations, which is a genuinely unpleasant assessment.

Owner Managers: The T5 You Owe Yourself

If you own a corporation and paid yourself dividends, you owe yourself a T5. Not a note in your bookkeeping, an actual slip filed with CRA by the end of February.

This is one of the most commonly skipped filings in owner managed businesses, usually because the owner reasons that they will report the dividend on their own return anyway. CRA does not accept that reasoning. The slip is a separate obligation with its own penalty.

Real Scenarios From BC Businesses

You Paid a Bookkeeper $9,000 as a Contractor

Technically a T4A for fees for services. Practically, most businesses do not issue one and CRA has not been penalising it. The real question is whether the bookkeeper is genuinely independent: do they have other clients, do they set their own hours, do they use their own software and equipment? If yes, contractor is defensible. If they work Tuesdays and Thursdays at your desk on your systems and have no other clients, you have an employee.

You Paid Yourself $60,000 in Dividends

T5, due by the last day of February. Decide and record whether the dividends are eligible or non eligible, and make sure a directors’ resolution declaring the dividend exists before the payment date, not reconstructed afterwards.

You Paid a Director’s Fee

T4. Director’s fees are employment income. Withhold income tax and CPP. EI generally does not apply to directors who are not otherwise employees. Non resident directors have withholding rules of their own.

You Paid a Retiring Allowance

T4, in the retiring allowance boxes, not a T4A. Withhold at the lump sum rates. If any portion is eligible for direct transfer to an RRSP, that transfer has to be documented properly to avoid withholding on it.

Filing Deadlines and How to File All Three

Slip	Due to CRA	Due to recipient
T4 and T4 Summary	Last day of February	Last day of February
T4A and T4A Summary	Last day of February	Last day of February
T5 and T5 Summary	Last day of February	Last day of February
T5018	Six months after your fiscal year end	Same

If the last day of February lands on a weekend, the deadline moves to the next business day.

Electronic filing is mandatory if you file more than five information returns of a given type in a calendar year, and there is a separate penalty for filing on paper when you were required to file electronically. Use CRA’s web forms for small volumes or your payroll software’s transmission for larger ones.

Penalties for Late, Missing or Incorrect Slips

Late filing penalties are based on the number of slips.

Number of slips	Penalty
1 to 5	$100 flat
6 to 10	$250
11 to 50	$500
51 to 500	$1,500
501 to 2,500	$2,500
2,501 to 10,000	$5,000
More than 10,000	$7,500

 

On top of that, filing on paper when electronic filing was mandatory carries its own penalty starting at $125 and rising with volume. Failure to deduct CPP or EI attracts a 10% penalty, rising to 20% for repeat or knowing failures, and the amounts you failed to withhold become your liability.

Note the shape of that table. A single owner manager who forgets one T5 on their own dividends is looking at $100 plus interest, which is annoying but survivable. A business with 40 employees that files T4s a month late is looking at $500 plus a very awkward conversation with 40 people who cannot file their own returns.

 

How to Fix a Slip You Already Filed

Do not file a second original. That creates duplicate income on the recipient’s account and a review letter for them.

1. Prepare an amended slip with the corrected figures, marked as amended.
2. File it the same way you filed the original.
3. Give the recipient a copy and tell them, particularly if they have already filed their personal return.
4. If a slip should never have existed, file a cancelled slip rather than an amended one.
5. If the error changed the tax you should have withheld, correct the remittance too, not just the slip.

Wrong SIN, wrong name spelling and wrong address are all fixed the same way. A wrong SIN in particular should be corrected quickly, because the income is currently sitting on someone else’s account.

If your year end slips have been a scramble every February, the problem is almost never February. It is a payroll and bookkeeping setup that does not distinguish employees from contractors, does not track taxable benefits through the year, and does not record dividend resolutions when the dividends are actually paid. Our team at MaxPro Financials fixes that at the source and then files the slips as a routine part of year end. T4s, T4As, T5s and T5018s, filed on time, with the taxable benefits and dividend designations already handled.

Frequently Asked Questions

Can the same person get both a T4 and a T4A?

Yes. An employee who also received a research grant, a scholarship or certain other listed payments gets both. What they cannot legitimately get is a T4 for part of the year and a T4A for identical work later in the year. CRA reads that as an attempt to avoid withholding.

Do I issue a T4A to an incorporated contractor?

The requirement in the legislation applies to fees for services generally. In practice, CRA’s administrative relief means most businesses do not issue T4As to incorporated suppliers and are not penalised for it. The exception is construction, where T5018 slips for subcontractors are required and enforced.

Do I issue a T5 for a shareholder loan repayment?

No. Repaying a loan you actually made to the company is a return of capital, not income. But if the balance is really accumulated withdrawals rather than a genuine loan, you have a shareholder benefit problem, not a slip problem, and that needs sorting out before year end.

What if I paid a contractor less than $500?

No T4A is required under the fees for services threshold. Keep the invoice and the payment record regardless, because you still want the deduction.

Do I have to file if I only have one slip?

Yes. One T5 to yourself still needs a T5 and a T5 Summary filed with CRA by the end of February.

Can I just hand the slip to the person and skip filing with CRA?

No. Giving the recipient their copy and filing with CRA are two separate obligations, and the penalty applies to the CRA filing.

Do I issue a T4A for a bonus or gift to a contractor?

If it is additional consideration for services, yes, it is part of the fees for services amount. A genuine non cash gift of nominal value between arm’s length businesses is different, but cash and gift cards are never nominal in CRA’s view.

What is a T5018 and does it apply to me?

It is the contract payment reporting slip for businesses whose primary activity is construction, covering payments over $500 to subcontractors. It is due six months after your fiscal year end rather than in February. If more than half your business income comes from construction activities, it applies.

I filed a slip with the wrong SIN. How bad is that?

Fixable, but fix it now. File an amended slip with the correct SIN and tell the recipient. Left alone, the income sits on the wrong person’s CRA account and generates a matching problem for both people.

Are taxable benefits really required on the T4?

Yes, and they are the most common payroll audit finding. Personal vehicle use, employer paid premiums on life insurance, gift cards, cash allowances and certain parking all belong there. Tracking them monthly is far easier than reconstructing them in February.

We File Your Year End Slips

February deadlines have a way of arriving with a lot of unanswered questions attached. Was that person a contractor or an employee? Were those dividends eligible or not? Did the personal use of the truck ever get calculated?

MaxPro Financials handles year end slip filing for BC businesses, along with the bookkeeping and payroll that makes it straightforward instead of stressful. We sort out worker classification before it becomes a CRA problem, track taxable benefits through the year, document dividend resolutions properly, and file T4, T4A, T5 and T5018 on time. Book a consultation and we will review last year’s slips and tell you what needs to change before the next February.