Management Fee Bonus

by Lucy
(Markham)

Management Fee Bonus accrued in 2008, paid in 2009. Is a T-slip required?

Management Fee Bonus accrued in 2008, paid in 2009. Is a T-slip required?

Hi,

I'm fairly new at bookkeeping for corporations and deal mainly with small sole-proprietors. This year I took over the books for a small corporation.

Using the Trial Balance and Adjusting Entries provided by the large accounting firm the client deals with for tax planning purposes, I set up the books and am now putting together T-slips.

One of the adjusting entries showed an accrual for a large management fee bonus in 2008. Do I need to put this on a T4 slip or T4A slip?

The only thing the firm could tell me was that it was going to be picked up on the client's 2009 tax return and offered no further assistance.


image of fancy scroll lines


Due to the time constraints of the T slip deadline ...

... which is usually February 28 ... but this year it falls on a Sunday so ... the deadline for T slips is now Monday, March 1 ...

... I answered Lucy by email.

Before I post my response to Lucy ... and her reply back, let's see if any of you loyal work from home bookkeepers respond ... I get tired of listening to myself!!

As I see it, the dilemma seems to be that the accrued fee was paid within 180 days of 2009 ... but no withholding taxes were taken. Now it's 2010 with the T slip deadline looming ... what would you do?



Comments for
Management Fee Bonus

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Mar 08, 2010
 It's past March 1
by: Anonymous

I'd love to see your answer to this... It's now past the deadline. She has to remit the withholding taxes, even if it's late. The bonus has already been paid and declared. Just hope the T-slip was done properly and on time.
Mar 08, 2010
 Remit the Withholding Tax Part 1
by: Lake, Bookkeeping Essentials

Here was my email to Lucy ... but the short answer is remit the withholding tax even though you are late, prepare and send a T4, ... expect a PIER report because tax for 2009 was not remitted by January 15, 2010 along with penalties and interest.

NOTE: Due to word limits, the response is posted in two parts.

Hi Lucy,

I am responding by personal email for now due to your time constraints. I'll post it to the site later.

I am going to assume, that you are putting together the books for 2009, not starting with 2010. I hope this is not an incorrect assumption. Also rather than just answer the question, I'm going to walk you through how I would approach solving your dilemma.

One thing we know for sure from your conversation with the firm ... the firm will be recording the paid management fee bonus as income on the client's personal 2009 tax return.

I looked on the CRA website so I could give you a reference.

If you go to the CRA article When to complete a T4 slip, you'll find a link to Box 14 Employment Income. Once you click on it, I think the first thing you will notice is that bonuses and management fees are listed.

If you go to the CRA article When to complete a T4A slip, you won't see bonuses and management fees listed, but you will see a reference to "certain benefits paid to partnerships or shareholders."

Based on this, a T4 slip seems the better choice, not a T4A. One of the reasons I want to report the fee on a T4 is that a management fee bonus is usually paid out to managers / shareholders who are active in the company ... which ties the income to employment.



So the next problem becomes, were the withholdings taken? Here's why.

If you go to my chat on management fees, you'll see a link to a CGA series on owner/manager remuneration. Click on the link for Part 1 on salaries, bonuses, and management fees.

On page 3, you'll see mention that the accrued bonus must be paid out within 180 days of the fiscal year-end. If the payment was made by a transfer to the shareholder loan account, then the CRA accepts "payment of the applicable withholdings when the next payroll remittance is required will be evidence of payment of the bonus."

So, my understanding is that if management fees were accrued in 2008 and paid out in 2009, the corporation (employer) is required to take withholding tax, unless the amount was transferred directly to an RRSP.

... continued in next comment posting Remit the Withholding Tax Part 2
Mar 08, 2010
 Remit the Withholding Tax Part 2
by: Lake, Bookkeeping Essentials

NOTE: comments have a 3000 character limit so this response is continued from Remit the Withholding Tax Part 1.



How can you verify what happened? A few ways come to mind.

When I take over a set of books, I always want the prior's year GL ... so I can see how the company handled a particular type of transaction in the past ... because as you probably already know ... consistency between accounting periods is a basic accounting principle ... and often there is more than one way to treat a transaction. Plus ... I would hate to do anything that could potentially trigger an audit just because I started booking transactions differently than in the past.

So here are the places I'd be looking:

(1) In the GL under payroll taxes payable ... and in payroll tax expenses.
(2) To locate the PD7A for the period to see what was reported.
(3) Online through Represent a Client to determine what payroll reports were filed with CRA.


If there was no payroll activity, then I would want to trace back how past management fee bonuses were handled. Chances are, if your client deals with a large accounting firm, this will not be the first year management bonuses were paid.

If it looks like prior years issued a T4 with the applicable withholding tax, and no withholdings were taken in 2009 ... once you issue the T4 in February 2010, you will probably receive a PIER report in June.

If you end up phoning the CRA ... they have extended hours right now ... it is a good policy to record the agent's name, reference number, and call center ID ... but you have to ask for this information ... it is not volunteered.

I hope this helps. If I totally didn't understand your question, email me back. Either way, let me know if it helped.


Lake from Bookkeeping Essentials :0)

P.S. I would like to remind you there is a difference between information and advice. The information provided in this e-mail or on my site should not be construed as advice. Please make yourself familiar with my disclaimer.



Lucy replied that it was the first year a management bonus was paid due a growth spurt in 2008. The large accounting firm was not able to help her as two different departments were involved and they weren't communicating with each other. She was going to place a call to the CRA for clarification.

When I followed-up this week, Lucy let me know that it was left in the hands of the CA firm but a junior clerk thought that a T4 had been issued. The CA firm was going to deal directly with the CRA regarding the matter.
Nov 28, 2012
 Don't need to remit the souce deduction until you actually pay the bonus (management fee)
by: Margaret

You don't need to remit the source deduction until you actually pay the bonus (management fee)



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Thanks for that clarification Margaret.
Jan 22, 2013
 Management/Bonus Deduction
by: Me

That's true. You don't have to pay deductions but you only have a certain amount of time once the bonus/ management fee has been declared. Once it's paid, source deductions are paid on the following remittance.



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Thanks for your post. For anyone interested in more details on this topic, please see my chat on management fees.

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