For most purposes, it’s pretty straightforward which year-end slip has to be completed. While we generally think of year-end reporting requirements in terms of just the T4, there are, however, a variety of other slips which payroll must occasionally use for CRA reporting purposes, the most common of which is the T4A. So how do we know which slip to use when?
The general rule is that the T4 is used to report employment income, while the T4A is used to report post-employment earnings such as payments from registered pension plans.
What do we mean by the phrase ‘employment income’? For income tax purposes, this phrase has a very specific meaning: gross taxable income from an office or employment, as defined in sections 5 through 7 of the federal Income Tax Act. This includes salaries, wages, most employment-standards required payments and any allowance or benefit identified as being taxable in the T4130 guide.
However, there are a variety of exceptions from this general rule.
The most obvious exception relates to retiring allowances, which, for payments made after 2009, are now reported on the T4; however, not in Box 14, just in the Other Information area, using the specific codes that apply (codes 66 through 69).
In payroll, we generally think of ‘employment income’ as ending with the end of the employment relationship concerned. But, as I have written previously, ending the employment relationship doesn’t actually alter which earnings have to be treated as ‘employment income’. For example, a salesperson might have a right to commissions on sales that close after the person has left the company. Any such sales commissions still have to be reported on a T4.
However, despite otherwise being ‘employment income’, the following are to be reported on a T4A:
- Group term life insurance benefits for former employees. The normal $500 exemption from issuing a slip does not apply to these benefits. In other words, a T4A must be issued, even if the group term life insurance taxable benefit is 50 cents. However, multi-employer administrators or trustees only have to report former employee benefits if they are greater than $25.
- Employee contributions to a registered pension plan for past service for current or former employees. Employee current year RPP contributions are T4 reportable, but even if the person is still in an active employee, past service contributions are reported on T4As.
- The taxable benefit for employer contributions to provincial medical premiums, such as the BC Medical Services Plan, for former employees.
- Benefits payable to current or former employees due to lay-off or termination under a Supplementary Unemployment Benefit plan, as defined by the federal Income Tax Act. Even though the term SUB plan is commonly used for maternity/parental top-up payments, these are really WLRP benefits (see the next paragraph).
- Payments by a trustee in bankruptcy to settle employee claims related to wages earned prior to the bankruptcy. If the trustee continues to operate the employer’s business, the trustee becomes, in effect, a new employer and any ongoing wages are T4-reportable by the trustee under a new BN.
- The taxable portion of scholarships or bursaries provided to employee family members are reported on a T4A in the name of the family-member recipient.
- Transit passes issued by a transit operator to family members of a retiree. Here the T4A is issued in the retiree’s name.
- Contributions by former employees to a private health services plan are reported on a T4A.
- Pension adjustments (PAs) related to a period of reduced services or leave, if the plan is a multi-employer plan (MEP), are reported by the MEP administrator on a T4A.
Generally, employment income is reported on a T4A if the payment or taxable benefit is provided by a 3rd party. Here, there is a difference between insurance companies or benefit plan trustees versus outsourcing firms that operate on an administrative services only (ASO) basis. The ASO administrator acts as the employer’s agent while an insurance company or plan trustee is a 3rd party for this purpose. Group benefits that are income taxable are reported on a T4 if they are provided directly by the employer or by an ASO administrator acting as the employer’s agent. If benefits are provided by a 3rd party under the terms of an insurance contract or under the terms of a formal trust, the benefits are generally reported on a T4A.
The primary reason for this difference is to separate taxable income subject to CPP or EI source deductions and reporting from that which is not. You can take it as an absolute rule, that if taxable income is reported on a T4A, no CPP or EI applies.
Similarly, taxable income or benefits may be provided by other types of 3rd parties. For example, sales awards are often provided by manufacturers, importers or distributors to retail sales staff. If such awards are provided directly by the 3rd party, the taxable income has to be reported on a T4A and is not subject to CPP or EI. On construction sites, taxable benefits, such as travel, board and lodging benefits may be supplied by the main contractor to employees of a sub-contractor. Any such taxable income has to be reported on a T4A by the 3rd party providing the actual income or benefits.
Alan McEwen is a Vancouver Island-based HRIS/Payroll consultant and freelance writer with over 20 years’ experience in all aspects of the industry. He can be reached at firstname.lastname@example.org, (250) 228-5280 or visit www.alanrmcewen.com for more information.