February Tax Newsletter Feb 2025 Update 2 (T5/T4/T4a Deadlines )

We have one week left in February! 2025 is flying by. What does this mean? T4/T5 deadlines are fast approaching. The focus of this particular newsletter is to focus on a growing trend; the presence of subcontractors. 

Walkthrough video  6:52 minutes (or less at 1.25x speed)

T4A Reporting – What You Need to Know 

It has been the CRA’s longstanding position that businesses must issue a T4A slip for subcontractors receiving more than $500 in fees annually. While enforcement has been limited in the past, compliance efforts are increasing. We recommend that businesses stay ahead by proactively meeting their reporting obligations.

Why does the CRA Care? 

The main targets for this policy traditionally have been:

• CRA’s attempt to gain more insight to the construction industry (a target area… they even have a special T5018 form instead of the T4A)

• CRA’s attempt to crack down on unreported income (undeclared by the recipient)

• CRA’s attempt to target misclassification of employees (contractor vs employee)

• CRA’s attempt to identify any personal service businesses

Tax Practitioners vs  CRA’s Position 

Many tax professionals argue that Box 48’s “Fees for Services” definition is way too broad. Should a business issue a T4A for internet services from Shaw? What about one-time electrical work? The lack of clarity continues to be a point of debate. 

SCL Suggestions:

Step 1: Check Worker Classification: Whenever hiring/recruiting, first double check the classification is appropriate. Is the provider of these services truly a subcontractor, or are they an employee of the business? If a refresher is needed on this, guidance is available here.

Step 2: Collect Key Info: If a subcontractor, review all important information before signing off any agreement (as with any new contractual relationship). Collect their legal name, business name, address, SIN or Business Number. Keep this handy. The provider should be invoicing the business regularly for services provided. This invoice should be saved for your records.

Step 3A: Track Payments: For your business, it is encouraged to track these payments carefully. This can be done in your accounting program or tracked elsewhere. Ultimately, you should be able to answer “Subcontractor A was paid $XXX and Subcontractor B was paid $XXX in the XXXX taxation year”. What is the business’ source of truth for this information?

Step 3B: Issue a T4A (If Needed): Come tax time, determine if the business needs to issue a T4A for any of the subcontractors noted above.

What about 2024 year? 

While the T4A filing deadline is traditionally the end of February, CRA has announced an extension to March 7, 2025. If you feel that any of the above may impact the business, please do not hesitate to reach out.