Banka: Varied income requires lots of tax return paperwork
It takes a lot of paper to put together a tax return. Most income is recorded and sent to the tax payer by way of income slips.
If you are an employed person you may receive one or more T4 slips. On the T4 slip you can find your gross income (Box 14), Canada Pension Plan (CPP) paid (Box 16), Employment Insurance (EI) paid (Box 18) and income taxes paid (Box 22). You don’t need to receive a T4 slip if your income was under $500 and if there was no CPP, EI or Income tax deducted.
There are also boxes for charitable donations, union dues and registered pension plan payments paid through your place of employment. At the bottom of the form, there are a number of empty boxes that are used for taxable benefits.
If you have a number in one of these boxes, it has already been included in Box 14 which is your gross income. The kinds of items that would appear here would be commission income, foreign taxes paid, lodging or moving expenses to name a few. This slip is required to be issued by the last day of February.
If you have pension or other income (such as subcontract income) that may be reflected on a T4A slip. It has not yet become mandatory for all persons who employ a subcontractor to fill out a T4A slip, but the Canada Revenue Agency has amended the form, so that this may be required in the future.
The T5018 slips are mandatory for subcontractors working in the construction industry. The unique thing to watch out for on the T4A slip is if there is any income in Box 28.
Box 28 requires that the footnote that is located in Box 38 be referenced. These footnotes cover about two dozen different items ranging from scholarships, bursaries, death benefits, DPSP or RPP income, loans, medical premiums, group term life insurance for example.
This slip is also required to be issued by the last day of February only if the income amount is greater than $500 or if the benefit amount in box 28 is greater than $25.
Other slips that may be received by pensioners are T4AP, which explains the amount of CPP benefits, survivor and assistance payments that you have received during the year.
The T4AOAS is the slip for the Old Age Security. If your OAS has been clawed back during the year, this clawback will be shown on the slip in the box marked income taxes paid.
If you are receiving funds out of your RRIF, you would receive a T4RIF indicating the funds withdrawn and any taxes paid on the withdrawals and whether this was from your RIF or a spousal RIF.
Investment income is usually reported on a T5 slip. This slip will display items such as eligible dividends and regular dividends, interest or capital gains dividends. This slip also needs to be issued by the end of February each year.
Another investment income slip is the T3 slip. This slip is usually issued when income is distributed to beneficiaries of a trust. This slip lists eligible dividends, regular dividends, capital gains and other income. Other income is usually considered and taxed as interest. Other items that can be listed in the blank boxes in the middle of the slip are foreign income and foreign taxes paid as well as return of capital.
This is the only slip that is not required to be issued by the end of February. Instead, it must be issued by the end of March every year and the reason why April is such a busy month for accountants.