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Principal Issues: [TaxInterpretations translation] Why is GST/HST included in the amounts shown in Boxes 20 and 28 of the T4A slips when GST/HST should not be included in Box 22 of the T5018 slips?
Position: General comments.
Reasons: Legislative analysis.
FEDERAL TAX ROUNDTABLE
APFF CONFERENCE 2010
Fee amounts on T4A and T5018 slips:
The rules established by the CRA for the amount of fees or commissions to be included on the T4A slip differ from the rules established for the amount to be included on the T5018 slip (Statement of Contract Payments by a Construction Company to Subcontractors). In Guide RC4157 for the preparation of T4A slips, the CRA clearly states that Boxes 20 and 48 do not include the GST/HST paid to the recipient for services rendered. The same principle applies to amounts shown on the RL-1 Slip – Box O (see section 4.17.7 of the RL-1 Slip guide). However, for T5018 slip purposes, it is clearly indicated by the CRA on the T5018 Summary that payments made to a subcontractor including GST/HST and provincial tax (if applicable) must be included in Box 22.
Errors may occur and the total GST and QST related to amounts paid to a self-employed worker who is registered for tax purposes may be included in the amount of fees or commissions appearing on a T4A. This situation can occur, among other things, where only a few of the self-employed workers on a list were registered for tax purposes (due to the $30,000 threshold). The payer could then use disbursement amounts rather than pre-tax amounts for the preparation of T4A.
Those two different policies have resulted in recent years in errors in the preparation of T4As for large businesses. Some suppliers have had to request amended T4As so that taxes are not included in the amount shown.
There is therefore a potential for confusion in the applicable rules, the losers of which are the self-employed workers affected by such an error. In fact, without a sheet reconciling the amounts received before and after taxes, the tax preparer will not have the information to detect the error.
Questions to the CRA
(a) Can the CRA indicate why the rules for T4A slips differ from those for T5018 slips?
(b) In order to avoid the problems associated with such situations, could the CRA consider indicating "Amount of fees before taxes" directly on the T4A slip or creating separate boxes on the slips to show separately the amount of taxes related to the fees paid?
CRA Response to Question 49(a)
Under the terms of ITR subsection 200(1), every person who makes a payment described in ITA subsection 153(1) - including fees, commissions or other amounts for services - must complete an information return in prescribed form (i.e., T4A slips and the corresponding T4A Summary), unless such a return has been made under ITR section 238 ITR, among others. ITR subsection 238(2) provides inter alia that every person shall file an information return in prescribed form (T5018 - Statement of Contract Payments) in respect of any amount paid or credited by the person in respect of goods delivered or services provided on the person's behalf in the course of a construction activity if the person's business income for that year is derived primarily from that activity.
The rules are different as between these two information returns since they generally do not apply to the same amounts.
On the one hand, the amount to be reported on the T4A slip is generally an amount prescribed by subsection 153(1) to be included in computing the income of the person who received the amount. This would be the case, for example, for an amount paid as a self-employment commission, fee or other amount for services rendered (paragraph 153(1)(g)). The GST, HST, QST or provincial tax portion, if any, of the amount paid should not be reported on the T4A slip since it is not an amount under subsection 153(1) and is not required to be included in computing the recipient's income under the Act.
On the other hand, the amount to be reported on the T5018 Information Return - Statement of Contract Payments refers to amounts paid or credited for goods delivered or services provided in the course of a construction activity. Thus, the person is required to record payments, including all taxes (GST, HST, QST, or provincial tax, if applicable), made to subcontractors who provide construction services and report them to the CRA. The T5018 Information Return - Statement of Contract Payments is mandatory for any payment for goods delivered or services provided where the total payment is $500 or more in the year. However, no information return is required where the amount is paid or credited in full on account of the sale or lease of goods.
Finally, no information return is required to be filed under ITR subsection 200(1) (T4A slips and the corresponding T4A Summary) in respect of a particular payment made by a person if an information return (T5018 - Statement of Contract Payments) has been filed under ITR section 238 for that particular payment. In this regard, the following is stated on the first page of Guide RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary:
“Do not fill out a T4A slip for …[p]ayments made by individuals, partnerships, trusts, or corporations with construction as their main business activity to subcontractors for construction services. Instead, fill out the T5018 slip, Statement of Contract Payments.”
CRA Response to Question 49(b)
The CRA is of the view that the T4A slip (current version) is compliant with the ITR and considers that no correction is required.
Response prepared in collaboration with:
Kristy M. Nguyen
Income Tax Section - Group 1
Technical Applications and Valuation Division
Audit Professional Services Directorate
Compliance Programs Branch
Income Tax Rulings Directorate officer responsible:
October 8, 2010
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