T4A Information Slips

An Independent Contractor is a person paid to provide a service that is outside of the employer-employee relationship.

The simple answer is to avoid misclassification risk. As an independent contractor is their own boss, the written agreement should lay out the terms of the engagement including professional liability and dispute resolution. To mitigate "misclassification of a worker" risk, clearly discuss and include a section for each of CRA's criteria for determining work status. 

The contract should not be a template but one you customize for each written agreement you enter into. Robert Woods, tax lawyer, author and blogger says the written agreement should cover who has "the right to control the manner in which services are performed. Consider obligating the employer to pay for a finished product." ... where the company, not the independent contractor,  details the FINAL product specifications.

As a small business owner, I would include a requirement that payment will be made on presentation of invoice(s) which is preferably not billed by the hour, week or month but on progress of contract completion.

It's always a good idea to write the contract in tandem with a lawyer ... or at a minimum, have a lawyer review what you have drawn up.

Click here for more information.

The most recent CRA Guide RC4157 states it "is not assessing penalties for failure relating to completion of box 048".

The November 2016 Final Report for Audit, Evaluation, and Risk Branch noted that "the CRA guide states the CRA is not assessing penalties for failing to complete box 048, or reporting payments made by a person for "fees, commissions or other amounts for services". Some employers interpret this to mean that they are not obliged to complete this box on the T4A slip. There are two consequences to this interpretation: first, employers may not capture the Social Insurance Number (SIN) or other relevant identifier information of the worker; and second, ECA auditors may have trouble gathering the information necessary to complete the slips. These findings suggest that the current enforcement strategy for box 048 T4A slips is not cost effective."

The report recommended "employers’ obligations surrounding the filing of box 048 T4A slip" be clarified; and that "more cost effective methods to enforce T4A slip reporting compliance" be adopted.

Expect this to change in the near future as CRA undertook an online survey in 2024 about businesses' readiness to comply with the Fee For Service reporting requirements.

If you are a Canadian company and hire a US citizen under independent contractor rules, you will need to send the IRS Form 1099-MISC.

To do this, you will need the US citizen's social security number.

Don't forget to give the US citizen a copy of the IRS Form 1099-MISC for their records to use for their income tax preparation.

You can find a copy of the IRS Form 1099-MISC at www.irs.gov/pub/irs-pdf/f1099msc.pdf ... BUT you can't file the online form as it is not scannable.

You order the form from IRS free of charge. If you are located in the U.S., contact the IRS toll free at 1-800-TAX-FORM.

However, if you are in Canada, alas the toll free number does not work. You will have to telephone or FAX the Philadelphia Service Center office for assistance at:

Tel: 215-516-2000 (not toll-free) or Fax: 215-516-2555

Penalties of 10% on income tax, CPP and EI which are not withheld on the first failure to withhold, with the penalty potentially increasing to 20% for repeated offences, as well as non-deductible interest on the amounts owing.

Both the employee and the employer’s portion of CPP and EI plus penalties and interest are born by the employer.

Late filing penalties on the failure to file T4 Statement of Earnings slips.

I'm not an expert on cross border contractors so I'd like to respond as follows:

A September 14th, 2011 article at the Canadian Tax Law Blog (www.canadiantaxlawblog.com) discussed CRA's technical interpretation of Article V(9)(b) where CRA confirmed " that multiple non-resident parties to a subcontracting agreement may be deemed to have permanent establishments in Canada".

Two great articles you will want to read if you hired foreign contractors. They will be bring you up to speed on your Canadian and U.S. reporting and withholding obligations. These are older articles so please  talk to your accountant for customized advise suitable for your situation. Use the information in the articles for the talking points you wish to discuss.

Canadian companies using independent contractors in the U.S. by Philippe Brideau, CRA spokesperon.

Tax Bulletin: Tax consequences for Canadians doing business in the U.S. by BDO January 2021

The amount included in box 48 on the T4A should exclude GST HST paid to the recipient.

It is the business owner's responsibility to issue your T4A slip but many don't as the CRA is currently not assessing penalties for failure to complete box 048 of a T4A slip.

You can still do your books without T4A information slips as you should have been issuing invoices that the business made payment on. If you do receive any T4A slips, make sure when preparing your Schedule T2125 that you do not double count your income.

In most tax software, once you input your T4A slip, the program will add it to your Schedule T2125 Gross Sales. Check that the T4A income is also not included in the income you manually entered from your own Profit and Loss statement.

RECONCILING THE T4A SLIPS TO YOUR SUPPLIER INVOICES

Ideally, you should reconcile your T4A slips to the invoices from that business for the year. The amounts should match. If they don't, you should call the business and request backup for the amount reported so you can determine where the problem lies. If the T4A slips turn out to be incorrect, the business would amend the slip and resubmit it to CRA. If your bookkeeping is the source of the issue, you will adjust your books to rectify the problem.