Self Employed
You don't need to understand every detail of every tax slip to file an accurate CRA tax return. However, decipherment your CRA tax slips can help you get a better idea of how much taxes are withheld, and how to reduce the taxes you owe. Keep reading to find out our top tips on how to understand your tax slips.
What is a T4 slip?
Officially, the T4 slip is known as a Statement of Remuneration Paid. If you earned employment income at any point during the year, you can expect to receive a T4 slip from your employer either in person or in the mail. Many employers today also make their T4 slips available online. This slip details the income you earned from a specific employer, along with any deductions, such as income tax, employment insurance, and Canada Pension Plan (CPP) contributions. If you worked for more than one employer during the year, you should receive a separate T4 slip from each one. If you worked in Quebec, you should also receive an RL-1 slip from your employer(s). Like the T4, the RL-1 slip details your Quebec income and amounts deducted from your pay for Quebec-based programs, such as Quebec income tax and QPP contributions. Even if certain numbers may seem the same, make sure to enter the right amounts from the right RL-1 boxes on your Quebec tax return, because federal taxes and Quebec provincial taxes are calculated differently. If you have lost or misplaced a T4 or RL-1 slip, or did not receive a slip you were expecting, get in touch with your employer. Note that employers have until the last day of February to submit their T4s. The deadline means that you should expect to receive any slips that are coming to you by the beginning of March. If you are registered for CRA's MyAccount for Individuals service, you may also be able to get a copy of a lost slip or slip from a previous year online.
What is the difference between a T4 and a T4A?
The T4A slip is a Statement of Pension, Retirement, Annuity, and Other Income. If you received self-employment income during the year, it would be reported on a T4A slip rather than on a T4 slip. The T4 and T4A slips look very similar, but the T4 is more detailed to account for various contributions you might have as an employee, such as union dues and employer pension plan contributions. If you earn Old Age Security income, you may also receive a different slip, known as the T4A(OAS). If you receive Canada Pension Plan Benefits, these amounts will be detailed on a T4A(P). In most cases, you probably won't have to worry about these slips for a while. Note that if you are self-employed, you probably won't receive a T4A from all of your clients. Usually, T4As are issued by established companies that think of you as a consultant rather than a service provider. Whether or not you receive a T4A from a client, you are required to report all self-employment and business income on Form T2125. If you received pension or retirement income during the year, these amounts should also be reported on a T4A. The same is true for academic scholarships and bursaries. Note that amounts received for scholarships are generally not taxable. However, you must still report scholarship income on line 130 of your tax return. In other words, the T4A provides the government with a record of money that was exchanged outside of traditional employer-employee relationships. If you are self-employed, you are responsible for paying taxes on your income. The good news is, you can claim business expenses to reduce any taxes you owe.
Self-employed or employee status?
If you are confused as far as whether you are self-employed or an employee, your tax slips can help you figure this out. Basically, if you receive a T4 with CPP/QPP and pension plan contributions and income tax withheld directly at the source, the CRA considers you to be an employee. If no taxes or contributions were withheld, you are responsible for paying these yourself and are considered self-employed in the eyes of the CRA. Another way to look at it is to think of self-employment income as business income. Business income can come from:
- Profession
- Calling
- Trade
- Manufacture
- An undertaking of any kind, OR
- An adventure or concern of the nature trade.
If you receive a T4 at the end of the year, with CPP contributions that are matched by your employer and income tax deducted at the source, you are considered an employee in the eyes of the CRA. In most cases, you cannot deduct business expenses on your CRA tax return as an employee. Exceptions to this rule include the GST and HST (or QST) you paid to earn employment income. This only applies if your employment contract states that you are responsible for these expenses, and you do not receive an allowance to cover them.
