Forms and income statement at year end

by François Lacoste-CPA auditeur,CA, February 07 2020
Forms and income statement at year end

Every business has the obligation to produce annual forms to declare the various amounts of money paid to its employees or self-employed workers with whom it collaborates. The travel agency is obviously no exception to this rule. It is also a sector full of self-employed workers since very often, external travel agents work on their own for a travel agency.

In Quebec, the ‘’Relevé 1’’ provincial form must be produced for employees who receive employment income. Employment income may also include commission income, depending on the employment contract. You will find important information on the T4 form that the individual will use to complete his personal tax return. It includes the gross salary paid and the various payroll deductions that were deducted from the employee’s gross throughout the year (pension plan, employment insurance, federal tax, medical care insurance paid by employee, etc.) An employee may have an hourly wage plus an amount of commissions calculated in proportion to the sales he made. Thus, box 42 of the T4 form specifically indicates the amount that the employee received as commissions. Why is it important to indicate the amount of commissions in this box? If this box was not filled in, it would not allow an employee on commissions to be able to deduct expenses related to his job (up to the amount of commission earned).

In Canada (outside Quebec), the employees’ income is declared exclusively through this same federal T4-form. Self-employed people’s income is declared through the federal T4A form.

Job expenses

In Canada, any employee can deduct employment expenses from his income in his tax return if he meets the conditions to do so and if he obtains from his employer the T2200 form as well as the declaration of working conditions (TP-64.3 general conditions of employment for residents of Quebec).

To consult the T2200 form:

https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2200.html

To consult the form related to the conditions of employment for residents in Quebec:

https://www.revenuquebec.ca/en/online-services/forms-and-publications/current-details/tp-64.3-v/

The deductible employment expenses vary according to the employment status and differ depending on whether you are "Salaried employees" or "Commissioned employees".

For more details, you can refer to the Canadian government website:
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4044/employment-expenses-2016.html

Self employed people

In several industries, companies must acquire services through subcontractors who are not usually incorporated. In the travel agency sector, this happens very often when the travel agency works with home-based travel agents.

Therefore, it is important to determine the worker’s status. For this purpose, it is recommended to consult the Revenue Canada and Revenu Québec websites to correctly determine a person's status.

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4110.html

https://www.revenuquebec.ca/en/online-services/forms-and-publications/current-details/in-301-v/

When you have determined that a person is self-employed, you (as a travel agency owner) are required to report on a T4A form (box 20), the commissions paid throughout the year. However, it is possible to obtain an exemption if the total amount of commissions paid during the calendar year is less than $500.

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/completing-filing-information-returns/t4a-information-payers/t4a-slip/what-report-exceptions.html

In summary, it is important when you hire a person to determine their status (employee or self-employed) because everything will determine the documents that you must give them at the latest on the last day of February.

Failure to provide the correct documents could have unpleasant consequences for the company and for the individual.

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