Every year, Canadians report copious amounts of information to the Canada Revenue Agency (CRA) by way of tax returns, election forms, information returns and other reporting forms. Along with the seemingly endless number of prescribed returns and forms come the numerous volumes of guides, interpretations and bulletins to assist in the reporting process.
It is no wonder, then, that every so often we come across something that lacks clear guidance and leaves taxpayers confused. Given the complex array of legislation that continues to be added to the Canadian Income Tax Act (ITA)—which is already exceedingly complex—we could discuss many examples of poorly considered or even misguided issues. But here we focus on one lingering topic: the reporting of “fees for services” in box 048 of the T4A.
With all the complexity associated with the 2000 pages of legislation in the ITA, why focus on T4A reporting? There are two reasons why we feel this topic is extremely important:
- the CRA’s inability to provide guidance on what to report; and
- the CRA’s inconsistent messages related to penalties.
The CRA’s inability to provide guidance on what to report
Subsection 153(1)(g) of the ITA states that every person paying at any time in a taxation year fees, commissions or other amounts for services (fees for services), shall deduct or withhold from the payment the amount determined in accordance with prescribed rules and shall, at the prescribed time, remit that amount to the Receiver General. There is no prescribed amount to be withheld from the payment, but regulation 200(1) requires the filing of a prescribed information return (T4A) unless the amount has been reported on a different prescribed information return.1
The current Guide RC41572 provides no guidance on what to report in relation to fees for services, other than the requirement to include the amounts on box 048 of the T4A and not to include GST/HST. The CRA has been asked repeatedly to provide guidance on what constitutes fees for services that should be reported on box 048 of the T4A. The CRA’s continued response has been as follows:
- All fees for services should be included as legislated under the ITA with the following administrative exceptions:
- any payment less than $500 to the extent no tax was withheld;
- services rendered to an individual on a personal basis by a professional or any other person who carried on a trade; and
- services rendered for the repair or maintenance of an individual’s principal residence.
At the 2009 APFF Conference, CRA representatives indicated that no further clarification will be provided until the ongoing study involving external stakeholders is completed. I am a member of the Small and Medium Practitioners Tax Committee with CPA Canada, and we have been discussing this lack of guidance with CRA officials. Through these discussions we have learned that the development of practical guidance is more difficult than originally anticipated.
The CRA’s inconsistent messages on penalties
While the CRA has remained consistent with the message that the ITA legislates the requirement to file a T4A reporting all fees for services paid, its comments regarding the penalties for non-compliance have been inconsistent.
The current Guide RC4157 states that the CRA does not assess penalties for failure to complete box 048, which is consistent with other CRA statements, including this one at the 2012 Ontario Canadian Tax Foundation Conference:
Until such time as the CRA undertakes a review for the purposes of clarifying the types of fees for services that are to be reported on a T4A slip, taxpayers will not be penalized for failing to complete box 048 on the T4A slip.
The CRA also stated in a 2011 roundtable session:3
The CRA will undertake contained consultations with the business community and key stakeholders. In the meantime, all fees for services that were previously reported in Box 28 should be reported in Box 048. Until such time as consultations are complete, taxpayers will not be penalized for failing to complete Box 048.
As the consultations continue, and until further guidance is provided, taxpayers should be justified in concluding that no penalties will apply for non-compliance in relation to fees for services and T4As. However, the following statement from CRA representatives at the 2017 APFF conference in relation to the application of penalties and not filing a T4A reporting fees for services is problematic:
The administrative relief provided since 2010 is an interim measure related to a change on the T4A of the box where these amounts should be indicated and not one relieving from the obligation of payers from filing T4A slips for services rendered.
With this latest statement, we now have conflicting messages, leaving taxpayers with two questions:
- Should I file a T4A related to fees for services without sufficient CRA guidance?
- If I do not file a T4A, will I be penalized by the CRA?
What should taxpayers do?
The CRA has provided an administrative position to relieve the burden of filing a T4A for fees for services in some situations. Beyond this administrative position, the ITA states that a payer must report in prescribed form (T4A).
Without additional guidance from the CRA, a decision must be made on whether to file a T4A for all fees for services, which could result in a lot of T4As for the average business (e.g., travel, electricity, heat, accountant fees, lawyer fees). Choosing not to file a T4A when legally required could result in penalties ranging from $100 to $7,000 annually, depending on the circumstances. One can only hope the CRA would be understanding given the lack of guidance and the inconsistent messages.
In order to assist with navigating this T4A dilemma, we have provided a decision tree below. Please consult with your Baker Tilly advisor to review your situation in detail.
- For example: NR4 – amounts paid to non-residents; T4RSP – payments from registered retirement savings plans; T1204 – Government service contract payments; T5018 – contract payment related to construction businesses.
- RC4157 - Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary
- The roundtable session was published in the February 2012 Member Advisory publication, which was produced jointly by Chartered Accountants of Alberta and Institute of Chartered Accountants of Saskatchewan.
Related content
