Understanding T3, T4, T4A, T5 Tax Slips and Their Use in IT Filing

The Canadian income tax system works on self-assessment. The Canadian Revenue Agency (CRA) requires taxpayers to report their world income from all sources and deduct the necessary expenses to arrive at the taxable income. Taxpayers do the self-assessment on the income tax forms and submit it to the CRA before the deadline. The CRA receives information about your income from the payer of the income and your self-assessed returns. This source of information is called a tax slip.

How Does Tax Slips Work?

One person can have different sources of income, such as employment, self-employment (gig work), investment income, pensions and more. There is a separate tax slip for each type of income. Tax slips are official documents that report income and deductions for the fiscal year. The person/institution that gives the income prepares these tax slips and submits one copy to the CRA and one to you, the income receiver.

The CRA uses these slips to cross-verify your income tax returns. Hence, you must use the information from these tax slips to file the income tax return. If you miss out on reporting any income, the CRA will know.

Four Common Tax Slips

When preparing to file income tax returns, your first step should be to list all the incomes you earned from every possible source within and outside Canada. The next step is to write the payor’s name against every income. Next, ensure you collect tax slips from each of the payors. The four most common sources of income are employment, investment, pension, and income from a trust. Each of these income sources has a dedicated tax slip.

T4 Slip – Statement of Remuneration Paid

The employer issues a T4 slip to their employees by the last day of February. In this slip, the employer provides the employee with all types of income they paid during the tax year. If you switched jobs, you will get a T4 slip from both employers, each stating the remuneration they paid.

The T4 slip includes salaries/wages, bonuses, commissions, travel allowances, and other benefits (like meal allowances and reimbursements) paid to employees. It also includes salary deductions such as income tax, Employment Insurance (EI) premium, Canada Pension Plan (CPP) contributions, and other deductions like charitable donations, union dues, and more.

T4A Slips – Statement of Pension, Retirement, Annuity, and Other Income

The T4A slip includes all other non-employment income (income not included in T4) and is issued by payors other than standard employers. It includes income like

• Pension or superannuation
• Annuity payments
• Lump-sum payments such as awards or bursaries
• Self-employed commissions
• Research grants and CRA’s taxable benefits like the Canada Emergency Relief Benefit (CERB) received during the pandemic
• Income from a Registered Education Savings Plan
• EI and CPP payout (T4A(P)), Old Age Security benefit (T4A(OAS)), and Registered Retirement Savings Plan (T4RSP) withdrawals.

The institute that pays this income issues T4A slips by the end of February. Taxpayers should note particular instances when the T4A slips could be issued to avoid missing out on reporting any income.

T5 Slip – Statement of Investment Income

The T5 slip includes information about the income generated from various investments, such as dividends from corporate shares, interest from bonds and bank accounts, capital gains from the sale of equity or bonds, and foreign investment income converted into Canadian dollars. Entities such as banks that pay investment income issue this slip by the end of February.

T3 Slip – Statement of Trust Income Allocations and Designations

The T3 slip includes information on the amounts disbursed by trusts to their beneficiaries. The trust will issue a T3 slip 90 days after the trust’s tax year ends. If the family trust holds shares, estate, and bonds and disburses earnings from these investments to its beneficiaries, the beneficiary will use the T3 slip and report it as income from the trust. If the same beneficiaries hold shares and bonds under their name, they will use the T5 slip and report it as investment income.

What Taxpayers Should Know About Tax Slips?

The payors are responsible for issuing tax slips to the income receiver before the specified deadline. Failure to do so could attract a penalty of $100 to $7,500, depending on the number of slips and the delay’s length. Once you receive the tax slip, verify the information in the slip. If there is any error, you can contact the issuer for amendments. The issuer will file the amended slips.

When filing returns, the tax return form has a specific line for each slip where you should report the corresponding amount. You can also refer to the Notes on each slip to understand where to report the income on your return.

Once you complete the form, you can adjust tax deductions and credits to arrive at taxable income. The CRA offers several tax-deductible expenses, and a professional accountant can help you file your tax returns accurately.

Contact KSSP Partners LLP in Markham to Help You Understand all of Your Tax Slips

Talk to a professional accountant to help you file income tax returns. To learn more about how KSSP Partners LLP in Markham can provide you with the best accounting expertise,  contact us online, or by telephone at 289-554-5997.