If business owners have not filed their T4 or T fives properly, they could trigger a payroll audit which would cause larger problems for them says Edmonton bookkeeping. It is very important that entrepreneurs understand not only that they must file their T fours and T fives on time, but if they want to avoid a payroll audit, they should also ensure that they are paying the correct amount and paying it on time as well.
One of the first things that can help entrepreneurs understand how to file T fours and T fives properly, is understanding the difference between the two. T fours are slips that record the payroll deductions such as income tax, CPP and EI not only for the employees, but for the business owners that takes salary as well. Employers need to also remember that there is an employer portion of CPP and EI that must be paid as well. On the other hand, T fives are strictly for dividends only. Any money that a business owner has taken out of the corporation as a disbursement of the earnings is was recorded on the T5 says Edmonton bookkeeping.
Business owners should keep in mind that salary is considered an expense of the business, and taking salary negatively affects the bottom line of the business. Dividends, since they are disbursement of the earnings, they do not affect the bottom line of the business. When his owners are figuring out with their bookkeeper or accountant what they should take out of their business. Should they take out salary or dividends, is a complex question that needs a lot of things taken into consideration to answer. If a business owner is planning on applying for financing any time in the next couple of years, they may want to limit how much salary they take out of the business, so that it does not negatively affect the profit in the business when they apply for that financing.
Another thing that business owners need to keep in mind, is when T fours and T fives need to be filed. Even though the amounts that are recorded on both slips are very different, and are for completely different purposes, they need to be filed at the same time. Edmonton bookkeeping says the filing date for T4’s and T fives is the last day of February at the very latest. This means February 28, or February 29 in the leap year.
Another thing that business owners should keep in mind, is that source deductions and payroll remittances do not need to be paid on T fives. In fact, T fives have absently no source deductions at all. Regardless of how much money and entrepreneur has taken out in dividends, they do not pay any source deductions on that. However, business owners also need to be very aware that if they are paying themselves dividends through writing themselves a check, they need to ensure that they do not put the word salary on the memo line, as it is going to limit what their accountant or bookkeeper can attribute that money too.
Edmonton Bookkeeping | T Fours And T Fives
It is extremely important for entrepreneurs to understand not only the differences between T fours and T fives says Edmonton bookkeeping, but how to file them properly. If business owners make a mistake either in the amount of source deductions they remit to Canada revenue agency, or file it late, they could end up triggering a payroll audit which would at the very least be inconvenient, and at the very most cost them additional fees in penalties.
The reason why Canada revenue agency takes such a serious stance, and large penalties for not paying source deductions adequately, is because the view source deductions as a trust fund. It is money that does not belong to a business owner. The business owner is entrusted to collect the funds from their staff, and give it to the government on their behalf. Therefore, if an entrepreneur does not pay the correct amount of source deductions, Canada revenue agency the use that as abusing trust fund money. The penalties are some of the highest that they hand out for incorrect source deductions payment.
If an entrepreneur has not paid source deductions in the correct amount, or if they have paid late, Canada revenue agency is going to send them a letter asking them to explain the discrepancy. A business owner could potentially try to explain why they have underpaid source deductions, or they can simply pay the remaining amount. If they do neither, or if Canada revenue agency is not satisfied with the explanation of why the underpaid source deductions, this will trigger a payroll audit.
In addition to being time-consuming and disruptive to the business, going through payroll audit can end up with even higher penalties. The two main functions that are going to happen in a payroll audit is that Canada revenue agency is going to send an auditor to look at the entrepreneurs bank statements in order to figure out where the money went. They are going to be determining if the business owner with help the source deductions from their staff, and then spent the money themselves. The second thing that the auditor is going to be looking at according to Edmonton bookkeeping is the business owners personal expenses to figure how much money they have personally taken out of the business.
In order to avoid a payroll audits, entrepreneurs can ensure that they are paying their source deductions on time, which is the fifteenth of every month for the previous month’s payroll, and pay the correct amount. If entrepreneurs need help in figuring that out, Canada revenue agency actually has a program that entrepreneurs can use to figure out the source deductions they need to withhold from their employees checks, as well that capability is built in to any payroll software such as QuickBooks, QuickBooks online, Sage and zero just to name a few.
It can be very easy for entrepreneurs to end up in a situation where they are triggering a payroll audit, but it is also very easy to avoid this situation Edmonton Bookkeeping. If entrepreneurs are diligence and pay on time and the correct amount, they can ensure that they will never be facing a payroll audit.