2020 T4 Preparation

COVID-19 continues to challenge us every day.  While the government assistance/programs pertaining to salary of employees of affected businesses provided welcome relief, it has also created additional reporting requirements about which employers must be aware.

There were two payroll related programs, the Temporary Wage Subsidy (“TWS”) and the Canada Emergency Wage Subsidy (“CEWS”).  The TWS provided a less significant advantage, in the form of a 10% retention of income tax withheld from employee gross salary between March 18 to June 19, 2020 (up to certain limits).   The CEWS, meanwhile, is still available (revised and extended to June 2021).  It originally allowed for federal support covering up to 75% of salary costs (again subject to certain limits).

These two salary related programs have created compliance requirements for purposes of 2020 T4 return preparation.

Firstly, new Form PD27 must be completed to report any TWS benefit.  This form requires detailed information, organized by pay period, regarding salary, statutory withholdings, and wage subsidy claimed.  Secondly, the T4 slips themselves must now detail the employee’s wages paid during the following periods…

• Mar 15 to May 9 (this will be code 57)
• May 10 to Jul 4 (code 58)
• Jul 5 to Aug 29 (code 59), and
• Aug 30 to Sep 26 (code 60).

NOTE: this requirement exists for all T4 slips, even those where the employer did not claim any subsidy.

As you might expect, this additional reporting will be used by CRA for purposes of assessing compliance with respect to the relief programs.  In particular, this might mean ensuring an employee was not receiving the Canada Emergency Response Benefit (or similarly oriented student benefit) while also working.  It could also allow CRA to ensure that employers did not claim more than 75% of the maximum wages allowed, between the CEWS and TWS in aggregate.

The above requirements mean that significantly more detailed information may be required in order to prepare and file the 2020 T4 returns.  If our office is assisting with the preparation, it means it will be more important than ever that you provide all relevant information, as early as possible.  For the PD27, which can be submitted anytime, if you want us to prepare the form on your behalf then you will need to provide copies of all documents on which you computed your entitlement.  For the T4 slip requirement, meanwhile, we will require detailed information about gross pay to each employee, in the format illustrated below as Table 1.

Since we’re mentioning payroll compliance matters, here are three additional items which may be relevant for some employers.

The first arises due to the fact that many employers required (or allowed) their employees to work from home, in order to adapt to distancing requirements, government recommendations, etc.  This in turn will likely mean than many employees will be looking to deduct certain expenses, as permitted by the income tax rules, on their 2020 personal tax returns.  To permit those types of deductions, the employer must provide a signed T2200 form, specifying that the employment contract/terms required the employee to incur expenses or work away from the normal place of employment.  Where a T2200 is not available, or where expenses were less significant, the government recently announced that a simplified ($2/day) way to claim costs related to working from home will be available (subject to requirements and limits).

The second issue to bring to your attention is the first (approaching) deadline applicable to the CEWS program.  Claims for periods 1 through 5 must be submitted by January 31, 2021.

The final item is a caution for employers with employees working from home, if those homes are in a different province, and if those employees have the authority to enter into contracts.  For example, picture a Quebec resident who was asked by their Ontario employer to work from home.  If as part of that employee’s role she is able to independently do things such as open new accounts or approve orders, then this might effectively create a ‘permanent establishment’ in Quebec (which would mean additional reporting, and perhaps additional provincial tax, for the employer).

If you have questions about these matters, please contact us.

TABLE 1 – FORMAT OF DETAILED INFORMATION REQUIRED FOR T4 SLIP PREPARATION

For an Excel version of this table please click here: https://www.ck-ca.com/download.php?id=30