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.
HOW TO PREPARE A T4 AND RL-1?
- 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.