Principal Issues: Is the payer required to issue a T4A slip to a self-employed contractor who receives compensation for services provided to the payer by the contractor?
Position: Yes.
Reasons: The law
XXXXXXXXXX 2007-022387 Michael Cooke October 30, 2007
Dear XXXXXXXXXX:
Re: T4A Slip and Summary Form Reporting
We are writing in response to your electronic correspondence of February 15, 2007, wherein you asked for our views as to whether the XXXXXXXXXX (the "Government") is required to issue a T4A Slip ("T4A") to a contractor who receives compensation for services provided to the Government by the contractor.
You have indicated in your correspondence that this particular contractor has refused to provide the Government with his Social Insurance Number ("SIN") because of a concern that the issuance of a T4A by the Government will result in his business income being treated as employment income by the Canada Revenue Agency (the "CRA").
Our Comments:
A person making a payment of fees, commissions or other amounts for services described in paragraph 153(1)(g) of the Income Tax Act (the "Act") is required under subsection 200(1) of the Income Tax Regulations (the "Regulations") to make an information return in prescribed form (i.e. T4A and T4A Summary Form) even if no amount of income tax has been withheld at source. However if the amount of the payment is less than $500, CRA generally waives the T4A reporting requirement unless income tax was withheld at source, in which case, a T4A must be issued.
The CRA will also waive the requirement to file a T4A when the payer is an individual who has contracted with the payee in a personal capacity. This would include a situation where services are rendered to an individual by a doctor, dentist, lawyer, accountant, hair stylist, etc or where the services are for work related to the repair and maintenance of the individual's principal residence. For more information on T4A reporting requirements please refer to Guide RC4157 Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary which can be viewed at: http://www.cra-arc.gc.ca/E/pub/tg/rc4157/README.html.
T4As are used to report amounts paid for services, including payments to self-employed contractors, partnerships and corporations, therefore the issuance of a T4A in a particular fact situation will not automatically result in CRA treating the relationship as that of an employer/employee. This would remain a question of fact. Note that where the recipient of the payment is a business (sole proprietor, partnership or corporation), the insertion of the business' CRA business number in Box 13 of the T4A instead of the sole proprietor's SIN in Box 12 may make this clear.
However, where a particular individual is considered to be an employee, there is a requirement to withhold tax at source and the amount of any employment income would be reported on a T4 Slip and Summary Form and not on a T4A. For more information on T4 reporting requirements please refer to Guide RC4120, Employers' Guide - Filing the T4 Slip and Summary Form, which can be viewed at http://www.cra-arc.gc.ca/E/pub/tg/rc4120/README.html. For information on determining whether someone is considered to be an employee or self-employed please refer to Guide RC4110 - Employee or Self-employed? at http://www.cra-arc.gc.ca/E/pub/tg/rc4110/README.html.
Where an individual refuses to provide his or her SIN when required to do so under the Act, the payer must be able to show that a reasonable effort was made to obtain it. For example, if you contacted the individual by mail to ask for his or her SIN, you should record the date of that request and keep a copy of any correspondence that relates to your efforts to obtain the SIN. Failure to make a reasonable effort to acquire a SIN may be subject the payer to a penalty of $100 for each failure. Likewise, if an individual declines to provide a SIN when required by the Act, such individual may also be subject to a penalty of $100 for each failure, pursuant to subsection 162(6) of the Act. If, after reasonable efforts, you are not able to obtain a SIN from the recipient, you should still file the T4A without the SIN no later than the last day of February to avoid any non-filing penalties. For more information on this topic, please refer to Information Circular IC82-2R2, Social Insurance Number Legislation That Relates to the Preparation of Information Slips at http://www.cra-arc.gc.ca/E/pub/tp/ic82-2r2/README.html.
Finally, should you require additional assistance in determining whether a T4 or T4A is required in respect of any particular payment or series of payments on which you need clarification, please contact the Trust Accounts Division of your local Tax Services Office.
We trust our comments will be of assistance to you.
Yours truly,
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch