CRA Subcontracting Reporting Requirements

by L. Kenway BComm CPB Retired

What are CRA's subcontracting reporting requirements? It seems like a straight forward question ... but it can be confusing to figure out.

My chat on issues surrounding T4A slips discusses:

• Subcontracting Payments and Fees For Service ... What's The Problem?
  
• The CRA Subcontracting Rules / Checklist
  
• Do You Need a Written Agreement?

Here are the most commonly asked questions around T4As and T5018s.

Do you use a T5018 slip or T4A slip?

This question has been asked in many ways in the Forum. I've placed the questions and responses here in one place to better capture the issues small owners have with these two slips.

If an employer hires someone else to do the work on their behalf (maybe you?), this would be considered subcontracting. This means you may need to issue a T4A or T5018 slip.

Let's start with why the confusion arose. In 2010, CRA redesigned the T4A slip. One of the changes was the addition of box 048 Fees for services. Previously these fees were usually reported in box 028 Other income.

Box 048 is where you report fees paid for subcontracting SERVICE payments totaling over $500 in one year to one supplier / vendor. The fees should exclude GST/HST.

Examples are fees paid to your freelance bookkeeper, accountant and lawyer or janitor. Service fees for tutors or examiners for educational institutions would also be reported here. You should NOT include fees paid for personal non-business related payments to your dentist or hair dresser.

If you received a T4A slip with an amount in box 048, you enter it into your tax program like any other tax slip. The tax program should automatically report it on your T2125 Schedule Part 1, Line A Sales, commissions, or fees. (See picture further down in this chat.) The amounts reported on the T2125 Schedule flow through to line 130 of your T1 jacket.

Normally, the tax program adds a line like "Income reported on T4A" to the section so you can clearly see that it has been reported. This helps to ensure you don't double count your income. If the amount pulls through, adjust the business income you have input and/or imported to reflect this.

The T5018 Statement of Contract Payments reports to CRA the income you made as a subcontractor. It is taxable income. The slip is for informational purposes only on payments over $500 to a subcontractor that provided construction services. Unlike the T4A, the total in box 22 might include GST/HST/PST amounts.

The reported figures represent amounts you have invoiced a construction contractor ... which means you should be able to reconcile it back to your invoices issued. If you are not a GST/HST registrant, it will not include the sales tax. If you are a GST/HST registrant, it will include the sales tax.

You need to report your T5018 income on your personal tax return (T1), Schedule T2125, Part 1, Line A Sales, commissions, or fees. (See picture below.)

If you are a GST/HST registrant, you would have remitted the sales tax collected to CRA on a regular pre-determined basis.

The sales tax remitted to CRA would be reduced by eligible input tax credits ... GST/HST you paid to purchase supplies for your business. I explain input tax credits in my article on GST/HST.

JA Smith & Associates Inc (www.jasmith.com) have a very good page on the reporting requirements for the T5018. They explain that "CRA’s definition of construction encompasses buildings, roads, and bridges ... contractors who provide non-construction services such as janitorial work or bookkeeping are not reportable."

Can you report these amounts on Line 104?

If you don't have any expenses to offset your T4A slip or T5018 slip income, do you still have to prepare a T2125 Schedule, or can you just report the income on line 104?

I want to point out that while you may decide to not claim any expenses, the T2125 form shows the expenses you are legally allowed to claim as deductions to reduce your taxable income.

The answer would be NO to line 104 reporting. Line 104 is for employment related income like tips, group term life-insurance premiums paid by an employer, GST/HST rebates claimed in the prior year for employment expenses, clergy housing allowances, etc.

CRA always reviews any amounts reported on line 104 because, unlike the T2125 Schedule,   it does not trigger CPP contributions. The T2125 Schedule triggers Schedule 8 to calculate your CPP premiums owing on net income earned.

That means frequent eBay sellers should be reporting their activities on a T2125 Schedule.

Your other option if you have no expenses to claim relating to the income on the slips is to manually report the income on line 130. The problem with this is you will now have to paper file your return. It is so much simpler to just let the numbers flow through the T2125 Schedule to ensure it gets reported correctly and that the related CPP premiums are calculated.

How do you reflect a payment to a subcontractor (non-construction) for services provided on the financial statements?

If you are using QuickBooks, change/setup your vendor to be a T4A vendor by:

• Going to the Additional Info tab under Edit Vendor.
• Entering their CRA BN or SIN.
• Making sure you check the box for "Vendor eligible for T4A".
• Saving your changes.

Record / post any subcontractor payments/expenses to a separate account under the COGS account section of your chart of accounts such as Subcontract Labour or Subcontract Services.

That about covers what I have to say on this topic. Please send in your questions if you didn't find your answer here.

See you on the next page ...
Your tutor Lake

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