Understanding every detail of a tax slip isn't something you need to master. Although a general understanding of what is reported on certain tax slips will ensure you file an accurate tax return. A basic understanding of the most commonly used tax slips can help you get a better idea of how much taxes are being withheld, and how to minimize how much you owe in taxes.

Here are a set of tips to help you better understand your tax slips.

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T4's

A T4 tax slip is known as a Statement of Remuneration Paid. If you have earned employment income at any point during the tax year, you should expect to receive a T4 slip from your employer. The T4 can be given to you either in person or in the mail. Your T4 may also be available online through your employer.

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This slip details:

1. the income you earned from a specific employer and;

2. any deductions, such as income tax, employment insurance, and Canada Pension Plan (CPP) contributions

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If you worked for more than one employer during the year, you can expect a separate T4 slip from each one.

Employed in Quebec? You should also receive an RL-1 slip from your employer(s). Like the T4, the RL-1 slip details your income in Quebec and amounts deducted from your pay for Quebec-based programs, such as Quebec income tax and QPP contributions.

Even if certain figures may seem the same, make sure to enter the right amounts from the right RL-1 boxes on your Quebec tax return. Federal and  Quebec provincial taxes are calculated differently.

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Difference between a T4 and a T4(A)

The T4A slip is a Statement of Pension, Retirement, Annuity, and Other Income. If you received self-employment income during the tax year, this income is reported on T4A slip rather than on a T4 slip.

The T4 and T4A slips are similar in appearance, although the T4 is more detailed and accounts for contributions you might have made as an employee, such as union dues and employer pension plan contributions.

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Did you receive Old Age Security income?

You may also receive a different slip, known as the T4A(OAS). For recipients of Canada Pension Plan Benefits, relevant will be detailed on a T4A(P).

Note that if you are self-employed, you most likely will not receive a T4A from all of your clients.

Typically T4As are issued by established companies that think of you as a contractor. You are required to report all self-employed and business income on Form T2125, regardless of whether you received a T4A

Pension or retirement income during the year is typically reported on a T4A. The same is true for academic scholarships and bursaries. Note: Amounts received for scholarships are generally not taxable, however must still be reported as scholarship income on line 130 of your tax return.

The T4A provides the government with a record of money that was exchanged outside of a traditional employer-employee relationships.

If you are self-employed, you are responsible for paying taxes on your income. The good news is, you can claim business expenses to reduce any taxes you owe.

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Self Employed - or Employee Status

Are you unsure of whether you are considered self-employed or an employee, your tax slips can help you figure this out.

1. If you receive a T4 with CPP/QPP and pension plan contributions and income tax was withheld directly by your employer, the CRA considers you to be an employee.

2. If taxes or contributions were not withheld, you are considered to be responsible for paying these yourself and the CRA considers you self-employed.

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Think of self-employment income as business income. Business income can come from:

·        A Profession

·        A Calling

·        A Trade

·        A Manufacture

·        An undertaking of any kind, OR

·        An adventure or concern of the nature trade.

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In most cases, as an employee, you are not permitted to deduct business expenses on your CRA tax return. Exceptions to this rule include the GST and HST (or QST) you paid to earn employment income.

This only applies if your employment contract states that you are responsible for these expenses, and you do not receive an allowance to cover them.

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We hope that the set of tips outlined above help you develop an understanding of some of the common tax slips related to how income is reported.

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