Each year, businesses are required to report a tremendous amounts of information to the CRA by way of tax returns, election forms, information returns and other reporting forms. These compliance requirements come with 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 us confused. The reporting of fees for services in box 048 of T4A is a prime example.
There are two reasons why T4A reporting is important:
- Inability to provide guidance on what to report by the CRA; and
- Inconsistent messages with regards to penalties.
Inability to provide guidance on what to report
The tax regulation states that every business paying a fee, commission or other amount for services (fees for services) should include the amounts on box 048 of the T4A without 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 has continued to provide the following response:
All fees for services should be included in accordance with the tax legislation 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.
The CRA has indicated that no further clarification will be provided until the ongoing study involving external stakeholders is completed. Through these discussions we have learned that the development of practical guidance is more difficult than originally anticipated.
Inconsistent messages with regards to penalties
While the CRA has remained consistent with the message that there is a 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 states that the CRA does not assess penalties for failure to complete box 048 on a T4A. However, the CRA had also made the following statement which suggests the application of penalties for not reporting fees for services on a T4A:
The administrative relief is an interim measure related to a change on the T4A where these amounts should be indicated and not one relieving from the obligation of businesses from filing T4A slips for services rendered.
With this latest statement, we now have conflicting messages, leaving businesses with two questions:
- Should you file a T4A related to fees for services without sufficient CRA guidance?
- If you do not file a T4A, will you be penalized by the CRA?
What should you 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 tax legislation states that a business 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. You can only hope the CRA would be understanding given the lack of guidance and the inconsistent messages.