A T5018 is a T-Slip that is provided to subcontractors in the construction industry detailing how much they have been paid. It is similar to a T4 Slip that reports the amount of employment income that a taxpayer has received.
Individuals, partnerships, trusts, and corporations who receive their primary source of business income from construction activities are required to report amounts paid or credited to subcontractors for construction services. These amounts are to be reported on a Contract Payment Information Return which consists of either a T5018 return, or a T4A-NR summary and slip depending on the residency of the sub-contractor.
If the sub-contractor is a resident of Canada, the taxpayer is required to complete and submit a T5018 return, consisting of a T5018 summary and slip. Payments over $500 for services must have a T5018 slip filed but if amounts are under $500, a T5018 slip is not required. Goods-only payments are not required to be reported. If the payments to the sub-contractor are for mixed goods and service payments, where the total annual service component is $500 or more, the amount paid is required to be reported under a T5018 slip and summary. To report amounts paid or credited to non-resident sub-contractors, taxpayers do not submit a T5018 return but submit a T4A-NR return instead. The requirement to report sub-contractor payments continues to apply to Canadian resident taxpayers who are paying for construction services performed outside of Canada.
A T5018 return assists the Canada Revenue Agency (CRA) in reconciling reported or non-reported income from the subcontractor, and identifying subcontractors who are required to register for and remit GST/HST. The requirement to report amounts paid through a T5018 return allows the CRA to reconcile cash and barter transactions for construction activities related to the erection, excavation, installation, alteration, modification, repair, improvement, demolition, destruction, dismantling, or removal of any part of a building, structure, surface or sub-surface construction.
A T5018 slip and summary may be provided to the sub-contractor by the contractor, and includes information on the reporting period, the name of the subcontractor, the subcontractor’s CRA business or social insurance number, the total paid to each subcontract and the subcontractor’s address. Payments for employee salaries are not reported on T5018 return, as these amounts were included on the T4 slip. However, if the employee also performs construction services as a subcontractor, these subcontracting amounts must be reported on a T5018 return.
T5018 – Business Income
Businesses in which more than 50% of its business income comes from construction activities, are required to report any payments made to subcontractors on a T5018 Statement of Contract Payments. These payments can be reported on a calendar-year or fiscal-year basis, due six months after the end of the reporting period. For business in which less than 50% of its business income comes from construction activities, reporting under the T5018 Statement of Contract Payments made to subcontractors in this case may not require reporting but may be voluntarily reported and accepted by the CRA.
T5018 – Contractors and Sub-Contractors
Each T5018 return must be completed and filed for each subcontractor. Contractors only report on those subcontractors they deal with directly. In the event of sub-trades, the subcontractor would be responsible for reporting amounts paid to the sub-trade, even if the contractor’s cheque is in the name of the sub-trade. In this event, the contractor would report the payment to the sub-trade to be included as payment to the subcontractor. Therefore, the contractor and sub-contractor report for the applicable amounts paid to the party with whom they hold their respective contracts.
T5018 – Possible Penalties
A failure to complete and file a T5018 return will result in penalties and interest depending on the quantity of slips outstanding or filed late and the number of days filed late. Interest on late filing penalties continue to accrue until payment is provided in full. The accuracy of reported information may be reviewed through the CRA’s usual course of audits. Tax evasion schemes involving the avoidance of tax through underground activities, face criminal prosecution, with finds of up to 200% of the tax evaded.
If you have not completed your T5018 slips, or if you have not reported all of the income you earned in any year, we can help! Call us today to learn more!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.