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Calculate payroll deductions and contributions

Payments of fees for service

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Content has been updated for clarity, completeness and plain language. No changes were made to the existing legislative requirement or to the CRA administrative policy.

The CRA is currently not applying penalties for failure to report fees for service.

Generally, if you pay a fee to a person to provide a service outside of an employment relationship or tenure of office, you need to fill out a T4A slip. This includes payments of fees for service between businesses (including sole proprietors and corporations). Depending on the situation, you may need to fill out a T4A-NR, T5018 or T1204 instead.

Common examples of businesses that provide services to other businesses
  • You contract a bookkeeping service to maintain your financial transactions through reconciling bank statements. They prepare financial records, such as cash flow statements or income statements, through updating bookkeeping software
  • Your trucking firm has contracted truckers who operate personal services businesses. If it were not for the workers being incorporated, they would be considered as employees and subject to the standard withholdings. Learn more at Tax implications for a personal services business
  • You contract out the maintenance and cleaning service to another business that specializes in these activities. For example, you hire a contractor to repair equipment used in manufacturing or maintain machinery
  • You engage a consulting service for various projects, including financial audits, IT consulting for new database design or software development, or landscaping for a new building
  • You contract a construction service to manage a project on your behalf to make sure they complete the renovations or construction project safely and efficiently
  • You contract out the landscaping, yard maintenance or snow removal company to design and maintain the land around your business property
  • You outsource to a legal service or independent lawyer to create customer contracts, review legal documents, or represent your business during a lawsuit
  • You engage a real estate service to find buildings and properties you want to purchase, rent, or lease for your business activities. The real estate service will also act as property managers for watching over the land and building on your behalf
  • You contract out the security service to monitor customers and minimize shoplifting. The security service contract includes watching over the safety of your company's employees, clients, and property.
  • You contract out the technical support service to assist with IT, networking, or computer issues for your business
  • You engage an independent contractor as a translator to translate from one language to another and also provide sign language (accessibility) to all your employees
  • You contract out the transportation service to drive your employees, executives, and clients to various locations
  • You use the services of a travel agent to help manage your business travel, book flights, and arrange hotel accommodations
When are executor, administrator and power of attorney's fees considered fees for service

Executor fees

An executor is an individual or trust institution named in a will and confirmed by a court to settle a deceased's estate. Generally in situations where an individual dies without a will, or the will does not name an executor, a court will appoint an administrator to handle the deceased's estate. Often, executors and administrators are paid a fee for their services.

Power of attorney fees

When someone has been delegated as a power of attorney, they may be paid a fee for their services. The deductions for the fees paid are treated the same as for executor fees.

Deductions and reporting

Generally, fees paid to an executor, administrator, or a person who has a delegated power of attorney are either considered business income or income from employment or tenure of office.

  • Business income

    Fees earned by a taxpayer for acting as an executor or administrator in the course of business forms part of their business income. The payment is considered fees for service.

     Continue to Step 1 – Determine if you need to report the payment on a slip

  • Income from office or employment

    Fees that are not earned by a taxpayer for acting as an executor, administrator, or a person who has a delegated power of attorney in the regular course of business are considered income from office or employment.

     Do not continue. The payments made to employees are reported in box 14 of a T4 slip. CPP and income tax are deducted. EI is not deducted.

On this page

Steps

  1. Determine if the payment made is for a good or for a service

    If you paid for a service that involves the provision of goods, you may need to determine its characterization as a good or as a service.

    The terms goods and services are not defined in the Income Tax Act (ITA) for the purpose of reporting the payment of fees for service. The terms should be understood in their ordinary meaning and the meaning used by the courts.

    Guidance indicating if the payment is for a good or for a service

    You may use the following guidance, based on the ordinary and legal meanings of the terms goods and services, to help you if you are not sure if the payment is for a good or for a service:

    • Option 1: Generally, payment for a good is an amount paid for:

      • Tangible and movable property (for example: clothing, office equipment, machinery, tools, supplies)
      • Merchandise manufactured or produced for sale
      • Articles of trade and commerce

    • Option 2: Generally, payment for a service is an amount paid for:

      • The actions of serving, helping or benefitting another (for example: legal advice, house cleaning, consulting services)
      • The physical or intellectual work itself, not the article of trade or commerce or tangible finished product produced by that work

    Whether an amount paid is for a good or for a service is a question of fact that can only be determined after a review of all of the relevant facts and circumstances.

    If you are not sure if the payment is for a good or for a service, you can contact the CRA.

    Example

    Situation 1

    Your business purchases a pre-fabricated display from another business that delivers, assembles and installs the display. As this display is a movable and tangible object, produced for sale, it is considered to be a good.

    In this situation, your business has made a payment to another business for a good and you would not need to report the payment using a T4A slip.

    Situation 2

    Your business pays another business to design a display for your store. The design is customized for your promotional needs. The design is then painted on a pre-fabricated display you had previously purchased. As the design you have commissioned is not a moveable, tangible object, it is considered to be a service.

    In this situation, your business has made a payment to another business for a service and you would need to report the payment to the other business on a T4A slip.

  2. Determine if you need to report the payment on a slip

    If you make payments for services, you will need to issue a slip to report the payment as fees for service if the payment meets all of the following conditions:

    • The payment was not made to one of your employees
    • The individual, trust, partnership or corporation provides a service for a fee
    • The fee amount is actually paid
    • You made payments of at least $500 to an individual, a trust, a partnership or a corporation during the year or you deducted tax from the payment
    What if you do not know if a worker is an employee or is self-employed

    If you or an individual working for you is not sure of the worker's employment status (employee or self-employed), either one of you can request a CPP/EI ruling to determine the status and whether the employment or the earnings are pensionable, insurable or both.

    Learn more:

  3. Withhold and report the payment on a slip

    You must withhold the following deductions and report on a slip depending on who the payment is made to:

    Most Canadian resident recipients of fees for service performed inside or outside Canada
    • Do not withhold CPP, EI or income tax deductions
    • Report the payments on a T4A slip in box 48 – Fees for services
    • Do not include GST/HST and PST in the amount reported in box 48

    Under the CRA administrative policy, a slip must be issued if the total of all payments in the calendar year were more than $500 or you deducted tax from the payment.

    Learn more on when and how to report: T4A slip – Information for payers.

    Non-resident recipients of fees for service provided in Canada
    • Withhold and remit income tax on the payment for service at the rate of 15%
    • Do not withhold CPP and EI deductions
    • Report the payment for service on a T4A-NR slip in:
      • box 18 – Gross amount
      • box 22 – Income tax deducted
    • Do not include GST/HST and PST in the amount reported in box 18 or box 22

    The CRA administrative policy does not apply where tax is withheld. A slip must be issued if any tax is withheld, even if the total of all payments is under $500.

    Learn more on how to calculate: Calculate income tax deductions and how to report: T4A-NR slip – Payments to non-residents for services provided in Canada.

    Canadian resident subcontractor recipients of amounts paid or credited to whose primary source of business income is more than 50% from construction activities in respect of goods or services rendered in the course of construction services for the reporting period performed inside or outside Canada
    • Do not withhold CPP, EI or income tax deductions
    • Report the payments on a T5018 slip in box 22 – Construction subcontractor payments for services (or provide a listing or printout of all payments you make to subcontractors with all the information required on the slip)
    • Include GST/HST and PST (where applicable) in the amount reported in box 22

    Under the CRA administrative policy, a slip must be issued if the total annual service component of the mixed services and goods payments in the reporting period was more than $500 (do not include GST/HST) per subcontractor.

    You do not have to issue a slip if the payment is related to only the provision of goods.

    Learn more on when and how to report: T5018 slip – Statement of contract payments

    Canadian resident recipients of amounts paid or credited from a Federal department, agency, or a Crown corporation in respect of goods for sale or lease, or for services performed inside or outside Canada
    • Do not withhold CPP, EI or income tax deductions
    • Report the payments on a T1204 slip in:
      • box 82 – Service payments only
      • box 84 – Mixed services and goods payments
    • Do not include GST/HST and PST in the amount reported in box 82 or box 84

    Under the CRA administrative policy, a slip must be issued if the total of all payments in the calendar year were more than $500.

    Learn more on when and how to report: T1204 slip – Government services contract payments

References

Related

Legislation

ITA: 150(1)
Filing returns of income – General rule
ITA: 153(1)
Withholding
ITA: 153(1)(g)
Fees, commissions or other amounts for services, other than amounts described in subsection 115(2.3) or 212(5.1)
ITA: 162(1)
Failure to file return of income
ITA: 162(2)
Repeated failure to file
ITA: 162(5)
Failure to provide information on form
ITA: 162(7)
Information returns late filing penalty – Minimum penalty of $100
ITA: 163(1)
Repeated failure to report income
ITA: 163(2)
False statements or omissions
ITA: 163.2(1)
Misrepresentation of a tax matter by a third party
ITR: 101
Deductions and remittances
ITR: 105(1)
Non-resident – Fees, commissions or other amounts in respect of services rendered in Canada
ITR: 200(1)
Information return is required to be filed with respect to payments described in paragraph 153(1)
ITR: 205(3)
Filing – Prescribed information returns for purposes of 162(7.01)
ITR: 205.1(1)
Electronic filing requirement
ITR: 237
Contract for goods and services
ITR: 238
Reporting of payments in respect of construction activities

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