What Is T Slip Reporting?
As accountants, we throw around the term “T slip” a lot! We will explain it so you can throw the term around too…you know…out socializing, talkin’ business, lookin’ cool, etc.
In simple terms, when a person gets taxable compensation in some form (wages, dividends, contractor payments), the income to that person needs to be reported to Canada Revenue Agency so the government knows who to tax. For this, information slips need to be prepared. There are many different types of taxable income slips beyond what we will focus on. For a list, click HERE
Three of the most common types of slips issued for businesses however, are the T4, T5 and T5018.
When you have employees or contractors, it’s fairly straight forward – you add up what you paid them, including any benefits, and report all that to the government. Simple right?
But clients tend to get a bit confused when it comes to themselves as owners of their own company. What we hear a lot of is, “My company IS my income? I don’t get it Lisa!” So below, we will try to explain.
The money withdrawn from your corporation during the year that is not for business purposes (IE: personal groceries, personal visa payment, the dog’s haircut, the overspent weekend with buddies) needs to be reported to Canada Revenue Agency because this money is considered personal income. If you’re a budget-er, it also includes any structured payments you give yourself or any other shareholders as compensation to run your own business. Therefore, like all personal income, it needs to be reported on a personal tax return and tax paid on it.
Yes….BUT……When a T4 slip (a wage) is prepared for the shareholders, the amount on the slip is deducted as an expense inside your corporation and offsets the corporate tax your corporation pays, and the tax liability gets shifted over to the personal tax return.
When we report a T5 slip (dividend) for the shareholders, the amount reported on the slip does not get deducted as a corporate expense, but a dividend tax credit goes on the personal tax returns that offsets what was paid for tax on that money inside your corporation.
Since the personal tax return reporting period is from January to December, we need to report the withdrawals for the same time period.
Some year-ends overlap the calendar year and fall before or after December 31st. If this applies to your corporation, please make sure that you are only reporting to us the calendar year withdrawals (January – December) and not your fiscal year withdrawals. If your corporation’s year end is prepared after the information of the shareholder withdrawals is given, and there is a discrepancy, we will simply file amended T4 or T5 slips and the personal tax returns will need to reflect such. Some examples of the types of information you can send us to confirm personal withdrawals for each shareholder are:
- a general ledger print out from your bookkeeping with a total amount,
- bank statements showing the marked transfers or cheques to the shareholders,
- an email of written confirmation providing a total of the personal withdrawals,
- your own prepared spreadsheet with transactions and totals listed
- Use our template (with prefilled in examples) HERE
Please upload all documentation to the applicable Tax Year folder using our client portal HERE
Then, please inform us at admin@kassoc.ca when your file is ready for preparation. If you do not inform us, we will not know if you are ready for us to prepare your slips.
Information slips need to be sent to the government NO LATER THAN THE LAST DAY OF FEBRUARY. If the information is not received in a timely manner, your corporation could be subject to penalties and interest HERE
It is greatly appreciated if you would please provide the information as quickly as possible as the tax season gets busy and we need ample time to prepare slips for everyone.
*Please Note* Although we are aware that some shareholder’s situations never change, (IE: we usually know what to expect), we cannot estimate or confirm your withdrawals without your confirmation. In doing so, we could face third party civil penalties…..(and we all like what we do for work and would like to keep doing it!)
YES, YOUR JOB IS DONE!! Once we have prepared your corporation’s slips, we will file the slips to the government on your behalf. All you need to do is make sure to give a copy of the slips to the people they belong to, and include your slips in with your personal income tax return information. You will be able to access the slips in your client portal in the applicable tax year folder HERE
2 thoughts on “T4 & T5 Slip Reporting – STEPS TO FOLLOW”
Excellent clarity Lisa, ….as usual!!
I will transmit my info to your system shortly.
Brian, we are so happy that it helps you to understand!
We strive to make things as simple as possible for clients by not overwhelming them with complicated accounting terms….leaving the more complicated terms and procedures for us to handle.