What is T4A Form and Why is it Important?

August 18, 2022

For a startup and small business in Canada, taxation can eat into your business profit, affecting growth and possibly ending the startup’s life before it even starts. The business owner should report taxes per the income generated by the startup. The T4A tax form is the form needed to record the startup’s income. This article explains what a T4A form is, the importance of the T4A form, and how to fill it.

Tax System for Startups in Canada

According to the Canadian tax act, a startup or small business is any activity operated for profit. The activity is a business when the aim is to generate profit, whether the business generates profit or not. This activity includes a profession, venture, consultation, freelancing, human or office activity and must not necessarily include employees.

Taxes on the startup or small business is income tax on the profits generated from your business, and it’s paid at the federal or province level. If the business generates less than CAD 30,000 in four consecutive quarters of the year, then the business should not collect Goods and Services Tax or Harmonised Sales Tax (GST/HST) from customers. The GST/HST is sent to the Canada Revenue Agency (CRA), and the tax depends on the business size.

The filing of GST/HST can be monthly, quarterly, or annually, depending on the business size. Tax evasion and late payments attract serious sanctions from the Canadian Tax services. Intentional and serious cases of tax evasion can attract criminal conviction, jail time, or a large fine, depending on the degree of the offence. Falsified statements or omissions of tax returns can attract 50% of the understated or overstated tax.

If you have an outstanding balance after filing the tax return late, it attracts a late-filing penalty of 5% of the balance for the tax year. An extra 1% of at least 12 months of each month filed after the due date.

In Canada, most small businesses tax return is due six months after the year-end date, and any payables are due three months later than the year-end date. You should also file for a T4A tax form upon registration. This form is a self-employed tax in Canada. The form is for startups and self-employed providing the government with a record of income earned outside the traditionally-earned income.

You can claim operating costs and expenses incurred by your startup in this report to reduce the tax owed. Employers and contractors in Canada should file for a T4A tax form for payments made outside the hourly wages.

T4A Form and How to Fill It

A T4A tax form is a small business tax report to the tax service in Canada. It incorporates other types of income and deductions not covered in T4 tax instructions. 

• On the tax form, record all regardless of when you made it.
• Leave all boxes blank if it doesn’t have value to you.
• Do not alter the headings of any of the boxes.
• Report All dollars and cents paid during the year in Canadian dollars and cents. Do not enter the dollar sign ($)
• Do not enter hyphens or dashes between numbers.

Here are some tax tips and some of the most important boxes in the tax form.

• Enter the recipient’s name and address of whom made the payment 
• Enter the payer’s name (either the startup or individual)
• Enter the year you made the payment to the recipient.
• Box 20 is for self-employment commission income. You must also file form T2125 with your tax return.
• Box 22 is Income tax deducted
• Box 34  is a pension adjustment, not an income or deduction
• Box 42 Shows RESP Educational Assistance Payments
• Box 48 contains any fees for services provided, only for the net amount, and It does not include GST/HST.
• Box 105 Shows grants and scholarships.
• Box 117 Contains loan benefits
• Box 118 Shows medical premium benefits.
• Box 131 is for Any Registered Disability Savings Plan amounts.

Finally, add the appropriate code numbers for additional payment, and the form provides blank spaces for additional information not covered. Avoid repetitions of previous data, and request a second T4A tax form if the form requires more than 12 codes. Do not include all GST/HST amounts when reporting fees and services rendered.

Who Uses the T4A form?

Entities required to use the T4A form are all businesses and individuals not included in the T4 requirement. These include:

• Employers and contractors who pay outside the hourly rate
• Self-employed
• Small businesses and startups 
• Trustees, including liquidators, receivers, and assignees.
• Freelancers

Payments of other amounts related to employment and income like self-employed commissions, annuities, retirement allowances, pensions, and fees for services.

Delegate your Accounting Tasks

Filing a T4A tax form instead of a T4 form indicates that you are self-employed, either relating to a service or a business entity. The form states and reports all necessary information and income generated. Considering how daunting the entrepreneurial journey can be, it is best to opt for a professional bookkeeping service that helps them focus on growth and increasing revenues, while their books are managed by experts at an affordable price. 

Bookkeeping services for small businesses can help you stay organized throughout the year, and they can also prepare your tax documents for you. This will save you a lot of time and stress come tax season. It will also ensure that you’re in the right standing with the Canada Revenue Agency (CRA).

About Accountero
Accountero is a “built for founders” financial hub for growth-focused startups. We simplify the accounting process for business owners. Get access to human-driven, tech-powered bookkeeping services, one-click access to advisors to help you save on taxes, as well as high-level reports to identify areas of growth potential. Talk to us today about your accounting needs.