A contractor self-reports income earned to CRA, just as other businesses do.
However, Canada Revenue Agency (CRA) several years ago began an initiative that more closely tracks the reporting of contractor income, in that the reporting of revenue paid to a contractor is no longer solely reliant on that contractor’s own self-reporting.
To be clear, the term CRA “initiative” is not so much encouragement as it is requirement. Under specific rules, CRA now requires a company that pays a contractor, to report the year’s payments made to that contractor on one of three CRA tax slips.
“Contractor” is defined as either a freelance business service or freelance construction service, with “freelance” generally meaning a self-employed individual whether proprietorship or incorporated.
The T5018 slip, although having been around for years, until recently was used little.
Referred to as the “statement of contract payments” slip, CRA now requires a company that derives at least 50 per cent of its income from within the construction industry to submit to CRA a T5018 slip for payments made to any contractor such as a plumber, painter, roofer, etc, who is paid $500 or more in its fiscal year.
If payments to the contractor include GST, the amount reported on the T5018 will include the GST paid to the contractor. Amounts paid to the contractor for clearly identifiable goods supplied are not included on the T5018 slip.
A copy of the T5018 must be submitted to CRA within six months of a company’s year-end, with a penalty applied by CRA for late filing. A copy of the T5018 does not have to be given to the contractor.
The T4a slip, although a well-known tax slip, quietly had Box 48 added to it in 2010.
This box, although used little until recently, was established for inputting payments made to contractors who provide services such as engineering, accounting, training, cleaning, etc, of $500 or more in the year.
If payments to the contractor include GST, the amount on the T4a does not include the GST paid to the contractor. Likewise amounts paid for clearly identifiable goods supplied are not included on the T4a slip.
A copy of the T4a goes to both CRA and must go to the contractor.
The deadline is Feb 28. To date, CRA has not been applying a penalty for late filing.
The T1204 slip, is issued by a government when any contractor is paid $500 or more in a year. Because the government is GST exempt, the amount reported on this slip will have no GST included.
Amounts paid to the contractor for any goods supplied are included on the T1204 slip.
A copy of the T1204 goes to CRA no later than March 31.
A copy of the T4a does not have to be given to the contractor.
How does a contractor report the revenue reported on these slips on their tax return?
The T5018 detail is reported as revenue directly onto the personal tax T1 Schedule 2125 or the corporate tax T2 Schedule 125, remembering that any GST included in the amount must first be deducted and accounted for separately from the revenue.
Also, as per CRA rules, a T5018 does not have to be given to the contractor, only to CRA.
Of course, with or without a T5018, the contractor must report the revenue.
The T4a detail is reported just as any other T4a. For a proprietor, it’s reported in the T1 tax return’s T4a input form which flows through as self-employed revenue onto the T1 Schedule 2125.
For an incorporated contractor, it’s reported directly onto T2 Schedule 125.
The T1204 detail is reported as revenue directly onto the T1 Schedule 2125 or the T2 Schedule 125.
Given the newness of these slips in the bookkeeping process, it’s particularly important for a contractor receiving these slips to not input the revenue twice – once as regular revenue and once via the T slip provided to them.
The classic situation occurs when a contractor paid early in the year reports that revenue in the company’s books at that time, then receives a T slip at the end of the year and enters that same revenue a second time in the company’s books.
Conversely, not reporting income that needs to be reported could prove problematic to a contractor since CRA has copies of these slips yielding the ability for CRA to track and review revenues paid to contractors more easily.
Ron Clarke is owner of JBS Business Services in Trail, providing accounting and tax services.