In Canada, information slips are the backbone of income reporting. For employers, contractors, and business owners alike, issuing the correct slip is not optional—it is a legal obligation. Yet, year after year, confusion persists around three of the most commonly misused slips: T4, T4A, and T5.

Misclassifying income or issuing the wrong slip can trigger CRA reviews, penalties, payroll reassessments, and strained working relationships. For contractors, incorrect slips can affect CPP contributions, EI eligibility, and tax outcomes. For businesses, mistakes can signal deeper compliance issues.

This article explains the differences between T4, T4A, and T5 slips, highlights the most common errors employers and contractors make, and provides practical guidance to ensure compliance.

Why Information Slips Matter

Information slips are used by the Canada Revenue Agency (CRA) to cross-check income reported by taxpayers against amounts reported by payers. When slips do not align with the nature of the payment—or are issued incorrectly—the CRA’s matching program often flags the discrepancy.

Common consequences include:

• CRA review or audit requests
• Payroll reassessments with retroactive CPP and EI
• Penalties for late or incorrect filing
• Denial of expense deductions for contractors
• Reclassification of workers from contractor to employee

Understanding which slip applies to which type of payment is critical.

The T4 Slip: Employment Income

What a T4 Is Used For

A T4 Statement of Remuneration Paid is issued to individuals who are considered employees. It reports employment income and statutory deductions withheld during the year.

A T4 is required when a worker receives:

• Salary or wages
• Overtime pay
• Bonuses or commissions
• Vacation pay
• Taxable benefits (e.g., automobile benefits, allowances)

What Appears on a T4

A typical T4 includes:

• Gross employment income
• Canada Pension Plan (CPP) contributions
• Employment Insurance (EI) contributions
• Income tax deducted
• Taxable benefits and allowances

Employers are responsible for calculating, withholding, remitting, and reporting these amounts.

Common T4 Mistakes

Misclassifying contractors as employees (or vice versa)
Many businesses issue T4s simply because they pay someone regularly. Payment frequency does not determine employment status. CRA looks at factors such as control, ownership of tools, risk of profit or loss, and integration into the business.

Failing to report taxable benefits
Employer-provided benefits such as personal vehicle use, housing allowances, or low-interest loans are often overlooked but must be included on the T4.

Late filing
T4 slips must be filed with CRA and provided to employees by the last day of February following the calendar year. Late filing can result in penalties per slip.

The T4A Slip: Other Income and Contractor Payments

What a T4A Is Used For

A T4A Statement of Pension, Retirement, Annuity, and Other Income is commonly used to report non-employment income. While it has many applications, it is frequently (and sometimes incorrectly) used for contractor payments.

A T4A may be issued for:

• Fees for services paid to independent contractors
• Professional fees
• Commissions (outside of employment)
• Certain pension or retirement payments
• Research grants and scholarships

T4A for Contractors: The Key Distinction

A T4A does not automatically make someone a contractor. The worker’s status must still meet CRA’s definition of an independent contractor. If the individual should be classified as an employee, issuing a T4A does not protect the business from reassessment.

Unlike T4s:

• No CPP or EI is withheld (with limited exceptions)
• No income tax is withheld
• The contractor is responsible for reporting income and paying taxes

Common T4A Mistakes

Issuing T4As when no slip is required
Many businesses incorrectly believe they must issue a T4A for all contractor payments. In reality, T4As are generally required for fees for services paid to individuals, but not always for corporations (with exceptions).

Using a T4A to avoid payroll obligations
CRA routinely reassesses businesses that issue T4As to individuals who function as employees. This often results in retroactive CPP and EI liabilities.

Incorrect box reporting
Professional fees should be reported in Box 048. Using the wrong box can lead to CRA matching issues for the recipient.

The T5 Slip: Investment Income

What a T5 Is Used For

A T5 Statement of Investment Income reports income earned from investments, not from work or services. It is most commonly issued by financial institutions, but businesses also have obligations to issue T5s in certain circumstances.

A T5 is used to report:

• Interest income
• Dividends (eligible and non-eligible)
• Certain foreign income

When Businesses Must Issue T5s

A business must issue a T5 when it pays:

• Interest to shareholders
• Interest on shareholder loans
• Dividends to shareholders
• Interest to individuals or partnerships

This commonly arises in owner-managed corporations where shareholders lend funds to the company or receive dividends.

Common T5 Mistakes

Reporting dividends on a T4 or T4A
Dividends are not employment or service income and should never be reported on a T4 or T4A.

Failing to issue T5s to shareholders
Many small corporations pay shareholder dividends without issuing T5s, assuming the shareholder will “just report it.” CRA expects matching slips.

Incorrect dividend classification
Eligible and non-eligible dividends are taxed differently and must be reported correctly on the T5.

Comparing T4, T4A, and T5 at a Glance

Worker Classification: The Root of Most Errors

The most frequent and costly mistakes arise from misunderstanding worker classification. CRA does not rely on contracts alone. Instead, it considers:

• Degree of control over work
• Ownership of tools and equipment
• Opportunity for profit or risk of loss
• Integration into the payer’s business

If CRA determines a worker was misclassified, it can reassess several years retroactively.

Penalties for Getting It Wrong

Failing to issue correct slips can result in:

• Penalties ranging from $100 to $7,500 depending on slip count
• Interest on late remittances
• CPP and EI reassessments
• Gross negligence penalties in severe cases

For contractors, incorrect slips can delay refunds or trigger personal audits.

Best Practices for Employers and Businesses

• Review worker classification annually
• Separate payroll, contractor, and shareholder payment processes
• Maintain clear documentation and contracts
• Reconcile slips to accounting records before filing
• File slips early to allow time for corrections

When in doubt, requesting a CRA ruling or consulting a tax professional can prevent costly errors.

Final Thoughts

T4s, T4As, and T5s serve very different purposes, yet they are often treated interchangeably. For employers, contractors, and business owners, understanding these distinctions is not just a compliance exercise—it is essential risk management.

Issuing the correct slip ensures accurate reporting, protects both parties, and reduces the likelihood of CRA scrutiny. As CRA enforcement around payroll and information reporting continues to tighten, getting this right has never been more important.

Disclaimer

The information discussed in this article is general in nature and should not be construed as any sort of advice. If you have any particular questions regarding your personal tax situation, please reach out to sandeep@multanitax.ca.

Photo by Glenn Carstens-Peters on Unsplash