As 2020 draws to a close, individuals and businesses will soon need to start thinking ahead to preparing their annual tax filings for the year. This past year was unprecedented in many ways, one of which was economic. With COVID-19 creating a need for forced business closures or drastic reductions in staff, many people and businesses found themselves in need of one or more forms of financial support. In response, the Canadian government created various programs to provide assistance.
However, now that we need to turn our minds to accounting for the income/assistance received through programs such as CEWS, CERB, and CESB, there may be some confusion on how to report these funds. Below, we provide accounting tips specific to employers to ensure your 2020 tax filings and T4 information is in compliance with respect to these new sources of income.
Employers Take Note: New T4s for 2020
The first change to mention is the new T4 slip that will be issued for 2020. The Canada Revenue Agency (CRA) will want to validate payments made under the CERB, CEWS and CESB programs. The CRA has announced updated T4 reporting requirements for 2020. These additional requirements are designed to assist the CRA with validating Canada Emergency Wage Subsidy (CEWS), Canada Emergency Response Benefit (CERB) and Canada Emergency Student Benefit (CESB) payments. All businesses, irrespective of whether the business applied for any Federal Government COVID-19 support funds, must complete these additional reporting requirements.
Back in early September 2020, the CRA announced that the 2020 T4 will have four new boxes that will need to be completed:
- Code 57: Employment income from March 15 to May 9 (Periods 1 & 2)
- Code 58: Employment income from May 10 to July 4 (Periods 3 & 4)
- Code 59: Employment income from July 5 to August 29 (Periods 5 & 6)
- Code 60: Employment income from August 30 to September 26 (Periods 7 & 8)
As an employer, it will be very important to make sure that your T4 information is accurately broken down into these four codes and accounts for any income you have received from the CERB, CEWS and CESB programs. As businesses have until the last day of February to file their T4 Summaries, it’s probably a good idea to start double-checking now that these amounts can be reconciled. If your payroll system can easily generate T4 Summary information at any time, you may want to generate a report for the end of September 2020.
If you did not receive any CERB, CEWS or CESB payments, you will still be required to submit the new version of the T4, unless your 2020 fiscal year-end occurred before September 1, 2020.
10% Temporary Wage Subsidy (TWS) for Employers
It’s important to remember that you need to have up-to-date records for any subsidy earned through the TWS program; you do not want to have to pay back any amount received.
The CRA may ask you to provide the following information:
- total eligible remuneration paid from March 18 to June 19, 2020
- all federal, provincial, or territorial income tax deducted from the remuneration paid
- all Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums deducted from the remuneration paid
- total number of eligible employees employed from March 18 to June 19, 2020
If your business was eligible to take advantage of the TWS, you will have needed to fill out and submit Form PD27, 10% Temporary Wage Subsidy Self-Identification Form for Employers for each of your payroll program accounts. The CRA will use the information from your Form PD27 to reconcile the TWS on your payroll program accounts. You do not need to wait until you file your T4 information to submit this form. If you have not yet submitted it, now is a good time to review and check your information. If you claimed the Canada Emergency Wage Subsidy (CEWS), you will need to confirm on Form PD27 the amount of the TWS you are taking advantage of (refer to Line F of your CEWS application).
The CRA recently confirmed employers will be required to assist with validating payments made under the CERB, CESB and CEWS via additional T4 reporting requirements for the 2020 tax year. All employers will be required to report separately all employment income and retroactive payments made to employees in four defined periods in 2020 using the new information codes described above, regardless of whether the employer or employees received benefits under the CERB, CEWS or CESB.
If you are a business owner or employer in need of assistance with ensuring compliance with the new tax reporting requirements for 2020, please contact the team at ESS CPAs LLP by calling 905-517-2297 or reaching out online. Their corporate accounting professionals will advise you on how to best protect your business and ensure accurate tax reporting.