T4A Earnings and Potential Errors
Heads up, subcontractors! If you work in an industry that normally issues a T4 slip, you might be paying more taxes than necessary.
Common T4 issuing industries include massage therapy, instructional institutions, sales people, among others. If you’re commission based, chances are a T4 is headed your way at the end of the year.
But that’s no problem, right? Isn’t everything accurate and accounted for on my T4, you ask? Here’s the thing: there’s a certain confusion that comes with GST/HST payments.
When a contractor, such as a massage therapist, earns more than $30,000 in a one-year period, they’re required to register for GST/HST (and no, not the kind of registering you do when you file your personal taxes and apply for the GST credit, but as a business).
A company must pay a contractor GST/HST on their commissioned payments. From a business perspective, they paid their contractor their amount + GST. It’s a misconception that this is the “total amount paid” forT4A purposes. However, the requirement for a T4A is NOT to list the GS/HST payments on the slip, and this is where the issue lies.
The contractor will claim the amount on the T4A slip, which falsely elevates their income. Unless you think to first ask the question, you will claim a higher net income. Therefore, you’ll pay more tax!
Unfortunately, businesses issuing the T4A are not always aware of this, so they issue the T4A slip incorrectly.
What is the solution?
A relatively simple one! The issuer of the T4A must issue an amended slip for the earnings without GST/HST that states “Amended” on it, instead of “Original”. Normally, one would do this through CRA Webforms or through a professional tax software (your accountant).
Here is the link to CRA Webforms
As a subcontractor, you cannot solve this problem yourself! The business owner that issued the T4A slip MUST be the one that corrects the issue. CRA won’t just take your word for it. The slip must be corrected.
There is one option you can try, however, if you find yourself in a bind: include the GST in line 3A of the T2125. This will exclude the GST. Just remember, the CRA system is automated, and this line isn’t technically for GST on a T4A, so this may or may not work.
Save yourself time and money by watching your income so you can register for GST/HST when you make that $30,000 milestone, and make sure your T4 slips look the way they should.
