Calculate payroll deductions and contributions
Payments of fees for services
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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 services.
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 services 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 provides 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 specialize 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 services
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 services.
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
- Determine if you need to report the payment on a slip
- Withhold and report the payment on a slip
- References
Steps
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 services 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 or credited
- You made payments of at least $500 to an individual, a trust, a partnership or a corporation during the year
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:
Withhold and report the payment on a slip
If you are a payer of fees for services and the payment is made to:
- Most Canadian resident recipients for services performed inside or outside Canada, continue to Step 2a
- Non-resident recipients for services provided in Canada, continue to Step 2b
- Canadian resident subcontractor whose primary source of business income is more than 50% from construction activities for the reporting period performed inside or outside Canada, continue to Step 2c
- Canadian resident recipients of payments from a Federal department, agency, or a Crown corporation for services performed inside or outside Canada, continue to Step 2d
Most Canadian resident recipients for services 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.
Learn more on when and how to report: T4A slip – Information for payers
Non-resident recipients for services provided in Canada
- Withhold and remit income tax on the payment for services at the rate of 15%
- Do not withhold CPP and EI deductions
- Report the payment for services 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 it is under $500.
Learn more on how to calculate: Calculate income tax deductions and how to report: T4A-NR slip – Statement of Fees, Commissions, or Other Amounts Paid to Non-Residents for Services Rendered in Canada
Canadian resident subcontractor whose primary source of business income is more than 50% from construction activities 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 or a printout must be issued if the total of all payments in the reporting period were more than $500 (do not include GST/HST) per subcontractor.
Learn more on when and how to report: T5018 slip – Statement of contract payments
Canadian resident recipients of payments from a Federal department, agency, or a Crown corporation 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
- Tax implications for a personal services business
- Webinar: Personal Services Business
- Canada Pension Plan (CPP) and Employment Insurance (EI) Rulings
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: 105(1)
- Non-resident – Fees, commissions or other amounts for services rendered in Canada
- ITR: 200(1)
- Information return is required to be filed with respect to payments described in paragraph 153(1)(g)
- ITR: 237
- Contract for Goods and Services
- ITR: 238
- Reporting of Payments in Respect of Construction Activities
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