Year-end payroll wrap-up for T-slip processing in Canada

A year-end payroll wrap-up for T-slip processing in Canada involves several key steps to ensure that the information reported on employees’ T4 slips is accurate and compliant with Canada Revenue Agency (CRA) requirements. Here’s a step-by-step guide to the year-end payroll process:

1. Reconcile Payroll Records

• Verify Employee Information: Ensure that all employee details, such as names, addresses, Social Insurance Numbers (SINs), and other personal information, are accurate and up-to-date in your payroll system.
• Check Earnings and Deductions: Review each employee’s earnings, vacation pay, bonuses, and any other taxable benefits to ensure they are accurately reported.
• Verify Deductions: Double-check deductions for Canada Pension Plan (CPP), Employment Insurance (EI), income tax, and any other deductions (e.g., RRSP, union dues). Ensure the amounts match the payroll records for the entire year.

2. Prepare T4 Slips

• Complete T4 Slips for Each Employee: A T4 slip is issued to employees to report their income and deductions for the year. This includes wages, salaries, bonuses, taxable benefits, and any other employment income. The slip will also report deductions like CPP, EI, and income tax. 
  • Box 14: Employment income (salary, wages, commissions)
  • Box 16: Employee’s portion of CPP contributions
  • Box 18: Employee’s portion of EI premiums
  • Box 20: RPP contributions (if applicable)
  • Box 22: Income tax deducted
  • Other Boxes: Additional boxes for taxable benefits, pension contributions, and other items as applicable.
• T4A Slips for Contractors or Non-Employees: If you paid non-employees (e.g., independent contractors), issue T4A slips instead of T4s.

3. Reconcile Payroll Tax Accounts

• Verify Remittances to CRA: Ensure that all required remittances for CPP, EI, and income tax have been submitted to the CRA throughout the year. Any discrepancies should be resolved before issuing T4 slips.
• Adjust for Over or Under Payments: If your year-end reconciliation reveals over- or under-contributions, you will need to correct these amounts with the CRA before submitting your T4s.

4. Review Statutory Benefits

• Ensure that any statutory benefits (e.g., maternity leave, parental leave, sick leave, etc.) have been handled correctly for employees and are reflected properly in their T4 slips.
• Employee Benefits: If you provided any taxable benefits (e.g., health insurance, life insurance), ensure they are correctly reported as income on the T4 slips.

5. Generate and Distribute T4 Slips

• Electronically File with CRA: Employers are required to file T4 slips electronically with the CRA using the “RL-1” form (for Quebec) or the regular T4 submission method. Ensure all information is correct before filing.
• Issue Copies to Employees: Provide employees with their T4 slips, either electronically or by mail, no later than the last day of February of the following year.

6. File the T4 Summary

• File T4 Summary: Along with the individual T4 slips, employers must file a T4 Summary with the CRA. This document summarizes the total payroll for the year, including total earnings, CPP contributions, EI premiums, and taxes deducted for all employees.

7. Prepare for CRA Audits

• Ensure that all payroll records and T4 slips are accurate, complete, and easily accessible in case of a CRA audit. Maintain proper documentation for all payroll-related transactions for at least six years.

8. Provide Employees with Tax Information

• Employees will use the information on their T4 slips to complete their personal tax returns. Ensure employees are aware of how to use their T4s for tax filing purposes.

9. File Other Required Tax Documents

• Provincial or Territorial Filing: Depending on the jurisdiction, employers may also need to file specific payroll tax documents with provincial or territorial authorities (e.g., Quebec Revenue Agency for employees in Quebec).

10. Keep Records for Future Reference

• Ensure all year-end payroll records, including T4 slips, payroll registers, and other supporting documentation, are securely stored for a minimum of six years, as required by the CRA.

Important Deadlines:

• T4 Slip Distribution: The T4 slips must be provided to employees by the last day of February following the end of the calendar year (e.g., for the 2023 tax year, employees must receive their T4s by February 29, 2024).
• T4 Filing with CRA: The T4s must be filed with the CRA by the end of February as well, either electronically or on paper.

Conclusion:

Year-end payroll processing in Canada, particularly T-slip processing, requires careful attention to detail to ensure compliance with CRA regulations. By following these steps, employers can ensure they accurately report earnings and deductions, avoid penalties, and provide employees with the necessary documentation for their tax filings.