Key Takeaways
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As a business owner in Canada, whether you run a small start-up or a growing company facing challenges with tax slips, navigating the challenges can be difficult. The majority of employers know how to do payroll: pay workers, pay taxes, and maintain records. However, when tax time arrives, there is one question that causes more confusion than anything: Do I issue a T4 or a T4A?
These forms appear similar to each other. They both report income, are submitted to the CRA, and dictate how your worker will file their taxes. Yet the difference between a T4 slip and a T4A slip is by no means a mere technical issue, but it has a direct impact on your tax compliance, on the filing of your workers, and on your risk of being punished by CRA.
Think of hiring two different professionals. A T4 is like hiring a full-time employee; it is all regulated, planned, and obligatory. A T4A is comparable to hiring a freelance expert: more flexible, project-oriented, and with different tax accounting. The combination of these two types of employees can result in inaccurate deductions and misclassification, as well as possible CRA audits (it can spoil your week or month).
This blog simplifies the difference between T4 vs T4A in an easy-to-understand, real-life, employer-friendly manner. If you need to hire your first employee or operate with dozens of contractors, you will know what to issue, to whom, why, and how to remain compliant without getting a headache.
A T4 slip is the official account of the income you paid to an employee whom you consider to be an employee. That implies that you decide their time schedule, allocate their tasks, provide them with the tools of their work, and receive the results of their work. You have, in exchange, a number of duties, too: subtracting income taxes, making employer CPP payments, remitting EI, and maintaining year-round payroll compliance.
What is a T4 slip used for:
Salaries and hourly wages
Overtime payments
Bonuses, incentives, and commissions.
Vacation pay
Benefits that are subject to taxation (car allowance, phone, insurance, etc.)
Payroll contributions to a pension or RRSP.
Employer-controlled tips.
Lump-sum backdated payments
With the T4 slip, your employee will get credit on his/her CPP/EI contributions and will be taxed properly when submitting his/her personal tax returns. It is also important to enable the CRA to verify that your business has paid all the payroll deductions.
Example:
You own a cafe, and the barista works on a regular weekly shift. They are operating your equipment, working in accordance with your processes, and being paid biweekly. This is a textbook employee relationship → You give a T4 slip.
T4A slip reflects earnings that are not received through regular employment. This slip is most often issued to the independent contractor - to the individual who owns their own business, invoices you, makes their own schedule, and determines how the work will be done. It also includes various non-employment remunerations,including research grants, pension benefits, and service fees.
What is a T4a slip used for:
The payments of service to contractors or freelancers.
Commissions to non-employees.
Scholarships or Research grants.
Self-employed earnings
Training honorariums or allowances.
Self-employment program payments.
Payments of pensions, retirement, and annuity.
Control is the major difference. When the worker controls their tools, time, and technique, it is likely they are a contractor, and the income would be reported on a T4A slip. Here, there is no tax deduction unless the contractor demands it. It is their duty to manage their own taxes.
Example:
You engage a freelance videographer to film an advertisement for a product. They operate on their own, bill you, and bring their equipment. It is contractor income → You issue a T4A slip.
Employee vs Contractor: Making the right slip decision.
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Category |
T4 Slip |
T4A Slip |
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Employee |
Independent Blog |
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Required |
Not Required |
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Employment |
Service or non-employment |
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Controlled by the employer |
Controlled by the worker |
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Yes |
No |
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High if misclassified |
Moderate |
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Payroll jobs |
Freelance or contract work |
The decision between T4 vs T4A is based on one principle: who controls the work?
When the job is done the way you direct, the worker will act like an employee, despite being called a contractor. Misclassification is not a technical error alone; it may result in re-evaluations of CRA, back-dated contributions to CPP/EI, interest, and penalties. The following is the way to test the relationship:
Do you instruct the worker on how to do the job?
Do they adhere to your processes and procedures?
If yes → Employee → T4.
Does the employee invest in their equipment?
Do they invoice you?
Can they make a profit or a loss?
If yes → Contractor → T4A.
3. Degree of Integration
Does the worker form part of your business structure?
Are they your company ambassadors?
If yes → Usually a T4 employee.
You enlist someone for 15 hours/week, and they adhere to your internal bookkeeping SOPs.
→ T4 slip.
They charge you and work wherever they come, with their own equipment.
→ T4A slip.
The salesperson is paid a salary (T4) but also works on an external marketing project with you as a freelancer and charges you separately.
→ T4 and T4A.
Directors may get employment income + director fees.
→ Both slips required.
These are mixed roles, mostly used with small businesses, and they must be disclosed correctly; otherwise, they may cause compliance problems.
One of the most significant end-of-year tasks that Canadian employers have is filing the T4A and T4 tax forms. Although this is an administrative procedure, it involves thorough record keeping, proper payroll reconciliation, and reporting. Such a minor error as a wrong CPP deduction or omitted taxable benefit can cause CRA notices and make you re-file. This is why it is beneficial to learn the entire process of filing, from start to finish, to minimize mistakes and ensure your business is in compliance.
The year-end slips differ from the regular payroll, in which employers combine all wages, benefits, reimbursements, and payments to a contractor into a single error-free document. This implies that your gross pay, tax deductions, employee contributions, and taxable benefits must equal the amount paid during the year. Even the smallest incongruity will trigger a CRA system to send an automatic letter of discrepancy, which is often feared as a payroll discrepancy letter.
Employers need to adhere to a planned procedure in order to file T4 and T4A slips properly:
You are required to cross-examine all your payrolls from January 1st to December 31st before producing slips. The data you have to collect:
Gross wages
Overtime
Bonuses
Commission payouts
Vacation pay issued
Taxable benefits
CPP and EI contributions
Reimbursements
Employer-paid premiums
Contractor payments (for T4A)
The majority of mistakes in T4/T4A filings begin here, as businesses use last-minute downloads instead of reconciling records throughout the year.
CRA anticipates that your deductions will be equal to the official annual limits and formulas. The CPP and EI portions for an employer and an employee need to be reconciled on a pay-period basis. Difficulties encountered at this phase:
CPP was not withheld from employees who reached 18 half-years.
Excessive EI deductions among high earners.
The wrong income tax formula is due to the outdated payroll programs.
Omissions in deductions made in bonus payments.
In case of any discrepancies, you have to amend them before filing.
Before generating the slip, you have to confirm whether the employee should receive a:
T4 slip (employee income), or
T4A slip (service fees, contractor, non-employment income)
This classification identifies the type of slip and avoids CRA reassessment.
When a worker was both a contractor and an employee in the same year, you would prepare both slips, each reporting the income of one.
These slips may be filed in three ways approved by CRA:
The most prevalent one concerns small- or medium-sized businesses. You can post slip data or hand it in and save it.
Applications such as Wagepoint, QuickBooks online, Xero, ADP, and Ceridian automatically:
Generate employee totals
Calculate CPP/EI correctly.
Pull contractor payments
Create downloadable PDFs
This helps minimize the risk of manual entry.
An online free tool that is used by employers, not in payroll software. It is easy to operate and requires higher levels of manual labor.
After preparing the slips, submit them electronically. CRA requires all employers with more than five slips to file online; however, even those with fewer than five slips should file electronically to save time and improve accuracy.
Upon submission, the CRA generates a confirmation number. Note this down as evidence of compliance.
You shall deliver the slips to every worker who has filed with the CRA. This can be done through:
Digital payroll portals
Email (PDF copies)
Printed and mailed copies
Payroll software delivery (automatic delivery).
These slips are used by employees to file their taxes; therefore, accuracy will not be compromised.
CRA requires businesses to retain payroll and contractor payment records for 6 years from the last slip submission. These records may include:
Pay stubs
Payroll summaries
Invoices from contractors
Expense reimbursements
Benefit calculations
End-of-year reconciliation worksheets.
The benefit of having an organised record is that it helps secure your business during CRA audits.
In case you find that there is an error made in your issuing of a slip, e.g., a wrong sum of income or improperly classified income, you should submit an amended slip. The majority of payroll programs will have an automated feature to print corrected T4/T4A slips. The CRA anticipates corrections to be made immediately upon detection of the error.
The deadline of both T4 and T4A slips is annual:
February 28
Failure to meet the deadline attracts fines ranging from 100 to 7,500 dollars, based on the number of slips and the number of days outstanding. In the case of small businesses, a 10-day delay may lead to punishment because they were unprepared.
A large number of businesses believe it is either T4 or T4A; however, the truth is that hybrid cases occur annually. Here are the common scenarios:
The third group of employees is those who do freelance side projects on behalf of the company.
Directors receive a salary with fees.
Employees who move between contractor and employee.
Full-time consultants who are recruited after a probation period.
Reporting of each income type needs to be accurate, i.e., two distinct slips.
There are several ways through which workers can access their slips:
Direct email from employers
Payroll systems such as Wagepoint, ADP, or QuickBooks.
Printed copies
All issued slips automatically appear at CRA My Account.
Allowing workers to use CRA My Account minimizes administrative follow-ups and lost slips.
T4 (Employment Income)
Salary
Overtime
Bonuses
Paying employees on commission.
Taxable benefits
Vacation payouts
Taxable allowances paid by the employer.
T4A (Non-Employment/Self-Employment Income)
Freelance invoices
Consultant fees
Training stipends
Contractor commissions
Honorariums
Research grants
Director fees
When income depends on the work under your control, it goes on a T4.
In case the income is from an independent business activity, it should be reported on a T4A.
Businesses tend to experience the pressure during the T4 and T4A season. A downgraded employee can initiate auditing, retroactive reviews, and unwarranted anxiety. Payroll outsourcing eliminates the following risks by assuring:
Right employee/contractor classification.
Proper CPP/EI estimations.
Production and delivery of slips on time.
Adherence to the standards of CRA.
Rule changes are automatically updated.
Reduced mistakes at the end of the year.
To expand a business, outsourcing is not an indulgence but a protective measure that helps save time, money, and even legal trouble.
Knowledge of T4 vs T4A is not about properly completing the slip forms, but about correctly placing your employees in the right categories and preventing future CRA compliance problems. The decision is obvious once you know the essence of the difference (employee vs contractor).
However, when your company has a mixed positioning, changing job designations, or a hybrid setup, be wary and opt for a professional payroll service to avoid mistakes.
With the proper process, T4 and T4A filing will be effortless rather than painful, and your business will remain compliant over the years.
Yes. In case the individual received both the employment and the contract cash from you, they need to be given both receipts.
You may be subject to CRA reconsiderations, fines, and interest if workers are inaccurately classified.
A T4A will be required if the contractor earned 500 or more in a calendar year.
Normally no. Contractors claim their taxes unless they choose voluntary deductions.
Certainly, outsourcing will ensure proper classification, timely filing, and a reduced risk of CRA fines.
Content on this website is shared for general awareness and educational purposes only. It should not be taken as financial, accounting, taxation, or legal advice. At Aone Outsourcing Solutions, we do our best to keep all information relevant and accurate; however, we can’t promise that every detail is up to date or fits every business situation. Because regulations and compliance requirements can change, we encourage you to seek guidance from an expert professional before acting on any information on this site. Aone Outsourcing Solutions will not be responsible for any decisions made or losses incurred based on the material published on this website. For advice specific to your business needs, please get in touch with our team .
