UPDATED: T4As: Should we or shouldn’t we?

Staff Post
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 “Filling out the T4A slip” under the Box 048 section – 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 National Payroll Institute’s InfoLine as well as discussions with the CRA have 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 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 National Payroll Institute – 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. 

Canada Emergency Wage Subsidy Updates & Interpretations

The legislation supporting the Canada Emergency Wage Subsidy (commonly known as the 75% wage subsidy, or CEWS) is finally here. On April 11, Parliament passed Bill C-14, officially passing the subsidy into law and giving our sector more concrete guidelines for evaluation and application. Below, we have outlined the existing plan as well as the updates to help you navigate the implementation of the wage subsidy for your organization.

Need help? Contact us at info@youngassociates.ca. 

Overview

The Canada Emergency Wage Subsidy (CEWS) will reimburse eligible employers 75% of employees’ wages or salaries, based on a maximum annual salary of $58,700 – representing a benefit of up to $847 per week, per employee. The program will be in place for a 12-week period, from March 15 to June 6, 2020. 

Employers are eligible if they are private sector entities (commercial or nonprofit) that have experienced a 15% reduction in revenue in March, and a 30% reduction in revenue for the remaining months of the program. 

Eligibility for this wage subsidy is based on the salary or wages actually paid to employees. The application will be processed on a retroactive basis, so the amount of salary and wages paid will need to be identified during the application. All employers are expected to make best efforts to bring employees’ wages to their pre-crisis levels – i.e. pay the remaining 25%.

An application portal for the subsidy is in the works and is expected to be available within the next 3-6 weeks. 

Calculating Revenue Loss

To be eligible for the program, employers must:

• Decide on what basis they will calculate their eligibility. There are two basic options. Either compare their revenue in March, April and May 2020 to that of the same month of 2019. Or, compare their revenue in March, April and May 2020 to the average of their revenue in January and February 2020 to show the required reduction. (That is: the Jan-Feb average serves as the benchmark for each of the following three months.) Once the method is chosen, it must be used throughout the program period.

  • For March, the government reduced this 30% benchmark to 15% in recognition of the fact that many businesses were not affected by COVID-19 until halfway through the month.

  • Employers are allowed to measure revenues either on the basis of accrual accounting (as they are earned) or cash accounting (as they are received). Once chosen, the same accounting method must be used by the employer throughout the program period.

• NEW: To provide certainty for employers, the government has included wording that states once an employer is found eligible for a specific period, they will automatically qualify for the next period of the program.  For example, an employer with a revenue drop of more than 15% in March would qualify for the first and second periods of the program, covering remuneration paid between March 15 and May 9. Similarly, an employer with a revenue drop of 30% in April would qualify for the second and third periods of the program, covering remuneration paid between May 10 to June 6. 

  • Note, however, if you receive funds for which you are not eligible, you will be required to pay them back. If any fraudulent activity is found individuals could face fines and/or imprisonment.

  • We anticipate further clarity on this point to be forthcoming from the federal government

Charities and nonprofits have options available when it comes to calculating the 30% loss of revenue required to qualify for the program

• To recognize the challenges in measuring revenues of non-profit organizations and registered charities the legislation gives the option to choose whether or not to include amounts received from government sources in revenues for the purpose of applying the revenue decline test. This would include operating and project grants. Once chosen, the same approach must be maintained by the organization throughout the program period.

  • It is to your advantage to consider future months before making your first filing.

Pay Periods

Note that the subsidy is framed as a weekly amount by the CRA. If you pay your staff weekly, you’re set. If you pay bi-weekly, obviously, the calculation is straightforward. If you pay your staff semi-monthly or monthly, you cannot use your payroll numbers: you need to calculate it separately.

Donations from Board Members, Transfers from Investments and other Non-Arm’s Length Transactions

Bill C-14 does not count as revenue amounts derived from a person or partnership not dealing at arm’s length with the organization. We take this to mean that donations from board members and staff, transfers from investments, intercompany transactions (e.g. between an organization and its foundation) and amounts from other non-arm’s length entities should not be included in your calculations evaluating revenue decreases.

Refund of Employer Source Deduction Contributions

For employees who are on leave with pay due to COVID-19, the CEWS will also compensate the employer for the employer’s portion of their contributions to the Canada Pension Plan, Employment Insurance, Quebec Pension Plan and Quebec Parental Insurance Plan on top of the 75% wage subsidy. 

You can claim this amount for each week that the employee is receiving their salary or wages but is not working at all.

Employees who COULD work but are refusing don’t qualify for the above. The leave has to be initiated by the employer.

It is unclear at the moment how the employee’s leave should be documented, but it seems clear that documenting the leave – and the reason for the leave – will be important. We recommend one or both of the following: 1) Save written correspondence with the employee explicitly documenting the leave 2) Create an internal document (e.g. a Board motion) stating your rationale. 

Penalties

The employer will be required to repay amounts received under the CEWS if they do not meet the eligibility requirements. 

The government is also imposing a penalty of 25% of the CEWS received by an employer if the employer has engaged in transactions that artificially reduce the employer’s revenue in order to qualify for the subsidy. 

Under existing provisions of the Income Tax Act, persons making, or participating in making, a false or deceptive statement could be prosecuted with a summary or indictable offence. Anyone found guilty could be sentenced to prison for up to 5 years.

Interaction with the 10% Temporary Wage Subsidy

Note that the 75% CEWS does not replace the 10% Temporary Wage Subsidy. Both programs exist. Employers may qualify for both.

If you qualify for both, in our opinion it is to your advantage to claim the 10% subsidy now. You can claim this as a reduction to source deductions payable, thereby helping your cashflow right away. The CEWS portal is expected to launch in 3 to 6 weeks, with a direct deposit turnaround of several additional days. Please see our prior tipsheet for more information.

Note that the amount you claim via the 10% Temporary Wage Subsidy must be deducted from your 75% claim to CEWS. You cannot exceed the 75% subsidy amount. 

Interaction with the Work Share Program

Note that you still can still qualify for the CEWS if you are participating in the Work Share program administered through Service Canada. You will be required to report amounts you have already received through the Work Share program which will reduce the amount received from the CEWS. 

CEWS and CERB

Whether it is best to rehire employees that are currently receiving CERB or to continue to have them laid off is a matter that needs to be evaluated on a case by case basis. It is to your benefit – and your employees’ – to evaluate your financial position to determine the best course of action. 

Claiming CEWS for Subsidized Positions

This point is not specifically covered by government publications, but we wish to draw it to your attention, as in our view it is likely to be interpreted by the CRA as “double-dipping.”

Fully-Funded Positions

If a position is already 100% funded (e.g. Investing In Neighbourhoods, Canada Summer Jobs, Young Canada Works) do not also claim the CEWS. 

Partially Funded Positions

If a position is partially funded by another program, claim only the amount that would bring your total funding for the position up to 75% of the total wages paid. For example, if a Young Canada Works position is subsidized on a 50-50 basis between the employer and the government, the government is already subsidizing 50% of the wages. Therefore, you would claim the additional 25% to “top-up” the total subsidy to 75%.

Decisions that May Be Open to Interpretation

The legislation and general content presently available about CEWS does not cover every possible situation. Employers may need to make their own decisions about how to interpret the rules.

For any element of CEWS that may be open to interpretation, it will be prudent to document your process for potential future audit.

The government’s approach is to respond to the immediate crisis by paying first and asking questions later. Employers must behave responsibly in interpreting the available guidelines, and must assume that there is an eventual risk of audit. Maintain thorough documentation, and ensure that your board of directors understands the decisions you are making.

How Young Associates can assist

A consultation with us may make all the difference to your comfort level and confidence that your accounting system is up to the challenge of the pandemic. 

We can help you calculate your year over year revenue decreases and provide cash flow projections for the coming months, as well as help you calculate and implement the 75% or the 10% wage subsidy for your organization.

We’d also be happy to give you a quote for full-service bookkeeping. 

We work on the basis of fixed price agreements, so you’ll know going in how much our work will cost — and we always offer a money-back guarantee: if you’re not completely delighted with our service, we will, at your option, either refund the price or accept a portion of said price that reflects your level of satisfaction. 

Contact us: info@youngassociates.ca

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This tip sheet was created by Cassie Wojcik, Alicia McGuire PCP and the Young Associates team based on the best information available to us as of the date of posting.

Although every effort has been made to provide complete and accurate information, Young Associates makes no warranties, express or implied, or representations as to the accuracy of content in this tip sheet. Young Associates assumes no liability or responsibility for any error or omissions in the information contained in the tip sheet. 

Founded in 1993, Young Associates provides bookkeeping and financial management services in the charitable sector, with a focus on arts and culture. Young Associates also provides consulting services in the areas of data management, business planning and strategic planning. Heather Young published Finance for the Arts in Canada (2005, 2020), a textbook and self-study guide on accounting and financial management for not-for-profit arts organizations.

UPDATED: How Bill 148 affects your organization

There have been a number of changes to employment standards in Ontario since the passing of Bill 148, the Fair Workplaces, Better Jobs Act, 2017. As there are more changes becoming effective as of next month, it is a good time for organizations to review what’s already changed and what changes are still to come. We have highlighted some significant changes as of November 2017, December 2017, January 2018, April 2018, and upcoming in 2019.

November 2017

As of November 27, 2017, your organization should have already reviewed its classification of employee vs. contractor. We have noticed an uptick in the number of payroll audits among nonprofits. With stricter enforcement around classifications of who is an employee vs. who is an independent contractor (aka freelancer) now in effect with Bill 148, it is important that organizations thoughtfully review their decision-making process around defining an individual as an employee or as a contractor. Organizations should be prepared to  implement necessary changes. 

Factors to consider include:

• Control. An employee is directed by an employer; a contractor has a measure of control over what and how work is done (although they don’t have to exercise that control).
• Tools & Equipment. Employees who use tools and equipment do not own those items. Their employer should provide, maintain, and insure most of those tools. Employers can also reimburse employees for tools and equipment they have acquired for the job. 
• Subcontracting / hiring assistants. An employee cannot subcontract tasks or hire an assistant to do their work. A contractor can subcontract or hire help without approval of the payer.
• Financial risk. An employee’s expenses are reimbursed and generally has no financial risk. A contractor is self-employed and takes on financial risk with each engagement, should the contract go incomplete/unpaid.
• Responsibility for investment and management. An employee does not have a capital investment in the employer’s business. A self employed person generally has an established business, or a capital investment in the payor's business. 
• Opportunity for profit. An employee doesn’t gain profit or incur loss while doing their work, whereas self-employed individuals can take a loss or a profit in the course of a contract. 

Also as of November 2017, your organization should have updated its crime-related child death or disappearance leave. A child is defined as under 18 and can be a step-child or foster child. Employees qualify for this leave after 6 months of employment. It is an unpaid but protected leave of up to 104 weeks.

Employers should note that as of November 2017 the EI waiting period has been reduced from 2 weeks to 1 week, for those who have a reduced EI rate due to an STD (short-term disability) program. The government has provided employers 4 years from January 1, 2017 to have plans to accommodate the reduced wait period or the organization will risk losing the reduced EI rate. 

December 2017

As of December 3, 2017 employers need to have begun preparing to accommodate the following family-related job leaves: employees can now opt to take an extended parental leave (increased by an additional 26 weeks (61 weeks total). This could prove to be a popular option for parents in Ontario, where childcare availability and affordability are a huge challenge, especially for children under 18 months of age. It is important to note that once an employee chooses the parental benefit path (extended or non-extended) they cannot change paths at a later date. Also note that the EI coverage for parental leave is for the same amount, no matter the path chosen. In other words, the recipient will receive the same overall dollar amount whether the leave is 35 weeks or 61 weeks, but their biweekly payments will be more or less respectively. 

Also as of December 1, 2017, women can now take maternity leave up to 12 weeks prior to the birth of a child, and employees who are family caregivers are now able to take up to 15 weeks of unpaid, job protected leave.

January 2018

As of January 1, 2018, several changes related to wages and paid time off have come into effect, as well overtime, job leaves, and holiday pay, and record-keeping obligations. 

Your organization should now be accomodating the following changes related to wages and PTO:

• Minimum wage. Employees have a minimum wage of $14/hour. Student employees have a minimum wage of $13.15 (but if school is in session, they must work less than 28 hours / week to be eligible for this wage). So, if a student is working full time hours while school is in session, they are considered an employee, not a student employee, and are entitled to the full $14/hour minimum wage. The 28 hour per week limit does not apply on school holidays or during summer break.
• Vacation pay. New legislation means that every employee in Ontario is now entitled to 3 weeks (6%) vacation after 5 years of consecutive employment with a single employer.
• Overtime. Overtime pay must be paid out at the rate at which an employee was being paid at the time the overtime occurred. For employers, this means that overtime can no longer be calculated at a blended pay rate, and overtime pay cannot be paid out at, for example, the lower of an employee’s two pay rates. 
• Public holiday pay calculation. To determine the amount of stat holiday pay to pay out to an employee, an employer should now use the single pay period directly prior to the stat holiday to calculate the average daily wage (total gross earnings/number of days worked in that period). Some scenarios require employers to consider some additional factors:
  • For new hires, employers should use the current period to to determine the average daily wage, and pay that. UPDATE: The Ministry of Labour has announced that effective July 1, 2018, the ESA will be reverting back to the former statutory holiday calculation of 1/20 of the prior 4 weeks earnings as an interim measure while the public holiday changes to the ESA continue to be reviewed. This change is due to concerns arising from the Changing Workplaces Review, which found that "public holiday rules were the source of the most complaints under the ESA and needed to be simplified."  More info.
  • For anyone on approved leave in the pay period  prior to the stat, employers should use the pay period in which the individual last worked to determine the average daily wage.
  • When determining average daily wage use the gross earnings before statutory deductions. Do not include overtime pay, termination pay, severance and premium pay, vacation pay, personal emergency leave pay, domestic or sexual violence leave pay or pay for other public holidays.
  • The Statutory Holiday Calculator can be found here.

Employers also, as of January 2018, need to be prepared to provide to eligible employees 10 days of Personal Emergency Leave, the first two of which are paid. Employees are eligible after 1 week of consecutive employment. Employers are no longer allowed to to ask the employee for a physician’s note to validate the leave.

As well, employers should be prepared to accommodate Domestic and Sexual Violence leave to eligible employees. Employees are eligible after 13 weeks of employment. This is a job protected leave of up to 10 individual days, the first 5 of which are paid, and up to 15 weeks per calendar year for employees, or children of employees, who have experienced or been threatened with domestic or sexual violence.

As of January 2017, all organizations are now obliged to follow several new employee-related record-keeping measures. They should record:

• Dates and times employees are scheduled to work and changes to on call schedules
• Dates and times employees worked
• If an employee has two or more pay rates for worked performed in a pay week
• Any cancellations of scheduled days or work or on call periods and dates and times of those cancellations
• Vacation records for 5 years (instead of 3 years)

April 1, 2018

Upcoming as of April 1, 2018, organizations need to be prepared to issue equal pay for equal work. Part-time, casual, temporary, and seasonal employees must be paid the same as full-time permanent employees if they are doing essentially the same job. All organizations, including nonprofits, often with stretched budgets, will need to think carefully about how they rely on these types of workers and what they budget to pay them. A permanent, full-time employee cannot be paid more for the same task or set of tasks. Exceptions exist jobs paying by quantity or quality of work, or for merit or seniority systems, but these systems must be applied consistently. 

Possible changes coming in 2019

Although not yet confirmed by the government, organizations in Ontario should be prepared for the following in 2019:

WSIB review, which is proposed to 

• Update the 34 industry classifications
• Establish premium rates based on the collective experience of employers in the industry classification
• Set an employer’s actual premium based on individual employer experience based on individual company level of risk 

CPP Enhancements

• Starting in 2019 CPP contribution rate will increase each year until 2023 when it reaches 5.95%
• There will also be an additional enhanced earnings percentage of 4% for earnings between the yearly maximum and the new upper earnings beginning in 2024

Scheduling requirements

• Employees can request a location or schedule change after three months of employment, without penalization
• Employees can refuse shifts that an employer requests they take with less than 96 hours notice, without fear of retaliation
  • exceptions are made for dealing with an emergency, remedy, or reducing a threat to public safety, or continued delivery of an essential public service
• Employers must pay 3 hours wages to anyone who
  • regularly works more than 3 hours but has their shift is cut short
  • whose shift is cancelled without 48 hours notice from scheduled start time
  • is scheduled on call and is available to work but does not work at least 3 hours

An exception will be made when any of these situations arises from an event that is out of the employer’s control (eg. power failure, fire,) or if the employee works in a weather-related industry (eg. snow removal).

This tip sheet was created by Alicia McGuire of Young Associates. Founded in 1993, Young Associates delivers technical expertise and advisory services to support operational effectiveness of nonprofit and creative organizations. We invest in transformative technology and expert human capital to provide our customers progressive solutions in financial, data and information management, human resources, and strategic planning.

Disclaimer
 

Save yourself some pain: collect Tslip data and secure consent for e-distribution upon contract

One of the most painful parts of Tslip season is tracking down any missing information for recipients (e.g. SIN, address, email address) so that you can submit their tslip to the CRA and distribute their copy by the February 28 deadline. 

This can be particularly difficult with T4A recipients who are engaged on a short-term basis,  or who are living elsewhere and not in regular communication with your organization. Sometimes contract workers don’t file their income taxes on an annual basis, and therefore do not feel the same sense of urgency in regards to receiving their T4A on time… but when they’re ready to catch up, they don’t want to be delayed! 

The best way to avoid the pain is to collect all the necessary data upon engagement of the individual. Consider making full name, SIN, phone number, address, and email address standard fields on a contract, letter of agreement, or other initiating document so that you are ready for T-slip season before you pay the individual. 

And, since e-distribution of T4As, T4ANRs, and T5s (as well as certain T4s - click here for more info) requires consent from the recipient, add another standard field on your contracts to allow each individual to confirm their email address and opt in to receiving their tslip via e-distribution. 

Taking a bit of extra care at the contracting phase will save you a lot of frustration when February rolls around.  
 

New Seminars! Take the Lead: Principles for Administrative Leadership in the Arts

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. 

T4 slips can now be distributed electronically

In an attempt to encourage efficiency and reduce administrative burden for filers, the 2017 Federal Budget allows employers to electronically issue T4 slips to active employees, even without obtaining prior consent. Until this announcement, employers could send one copy of the T4 electronically, provided they had the employee's consent ahead of time, (as well as still providing one paper copy), or they could send two paper copies to the employee's mailing address or provide two paper copies in person. 

The Budget announcement means that for 2017 T4 slips (and those for any subsequent year), employers now do not have to obtain consent from an employee to distribute their T4 electronically, provided the following considerations are met:

• the employee is currently active (not on leave, has not left the company)

• (by the last day of February in the year following the calendar year to which the T4 applies) the employer provides the employee

  • a secure electronic portal through which the employee can obtain access their T4 slip,

  • a secure site for printing the T4 slip, and

  • an option to receive paper copies of the T4 slip, upon request.

The employer must distribute 2 paper copies of the T4:

• if the employee has requested that method
• if the employee is on leave or no longer with the company
• if the employee can not reasonably be expected to access the T4 electronically
• if the employer cannot meet the above conditions for secure electronic transfer (unless the employee had previously provided consent to receive the T4 slip electronically)

It is important to note that Budget 2017 does not consider email to be a secure method of transferring sensitive information included in the T4 slip, and it does not permit employers to use email as a method of distributing the T4 to employees without their prior consent. So, the only case in which a T4 slip is permitted to be distributed to an employee by email is if the employee has previously provided (written or electronic) consent to receive one copy of the T4 by email. 

Visit this page on the CRA website for more information.