T4 season is right around the corner, and it’s something that Canadian restaurant owners and operators should be planning for in advance. The penalties for filing T4s late to the CRA and sending to employees can be crippling.
Scrambling to get T4s done at the last minute is not ideal, especially given the restaurant industry typically has higher turnover compared to other industries. The key is to get ahead of T4 preparation to reduce last minute errors and stress by having all the information you need well ahead of the deadline.
In 2020, T4s for this year must be completed by March 2 because the last day of February falls on a weekend. For restauranteurs, T4s can be more complex than they are for other small businesses since many benefits aren’t taxable.
Knowing what is and what’s not a taxable benefit will depend on certain circumstances.
Here’s a quick overview:
The amount that workers earn in tips and gratuities is considered income that they must declare when they file their tax and benefit returns. How it is reported depends on whether it is received directly or through a controlled arrangement: workers are responsible for tracking and reporting any income earned as direct tips, while employers are responsible for tracking and reporting controlled tips. Detailed guidance on how to report tips and gratuities can be found here
If you reimburse employees for the cost of their cell phones, the fair market value of the phone is a taxable benefit. And if part of the use of the phone is personal, the value of the personal use must be included in their income as a taxable benefit.
If you pay an allowance to employees for uniforms and don’t require a receipt, it’s a taxable benefit.
It’s also important to know what information is needed before creating T4s.
Here are just a few items you should have:
- Employees’ names: You need all of your employees’ full legal names, especially if they were recently married and legally changed their name.
- Address: This is even more important if you mail out your T4s. Addresses should be confirmed with both current and past employees. This can be a daunting staff if you experience high staff turnover or tend to have seasonal workers. If possible, see if you are able to get the employee’s email address so that you can follow-up and verify any missing information.
- Province of employment: This is fairly obvious unless the employee lives in another province. In that case, the province of employment is where the employee works and not where they live.
- Social insurance number: You should have received this information when employees were hired. It can be tricky if you have someone coming in for a training shift and decide it’s not going to work. You still need to have their social insurance number and you still have to issue a T4, even for a short training shift.
- Income tax deductions: Ensure that taxable benefits are included in these calculations. The above taxable benefits are only examples. It’s best to talk with your payroll expert of accountant so that you’re issuing T4s correctly.
- These typically include, but not limited to: salary or wages, employment commissions, tips, gratuities and bonuses, taxable benefits or allowances, vacation pay and retiring allowances, if applicable. Employment Insurance and other deductions the provincial and federal government requires also needs to be calculated and included on all T4s.
- Your business number: The Canada Revenue Agency (CRA) assigned this number to identify you. It can be found on documents from the CRA. It should be on the T4s you submit to the CRA, but doesn’t go on the employee’s copy.
Completing T4s can be a struggle for many business owners. For restaurants, it’s much more of a hassle because of the high industry turnover. Ideally, it’s best to get a head start on T4s instead of leaving it until the last minute.
Learn other T4 payroll tips and a get a free checklist.
To learn more about other issues that are impacting restauranteurs, download BDO’s Franchise Restaurant Report 2019: Owners’ top concerns and trends affecting the industry.
Filling out T4s can be both challenging and time consuming. If you’d rather let someone else handle this work, contact BDO’s Restaurant Payroll Services team to find out how they can help your business.