Working under the table is against the law in Canada and by some estimates 15 per cent of the Canadian construction industry operates underground.

Some contractors and employees make under the table deals to avoid paying income tax, Canada or Quebec Pension

Plan contributions, Employment Insurance Premiums, Worker Compensation premiums, and GST/HST. And that black market dealing costs the government billions in tax revenue.

Canada Revenue Agency (CRA) and Revenue Quebec , however, have a weapon to battle that loss of revenue: The Contract Payment Reporting System.

Under that system, if you operate a construction business you must report payments of more than $500 that your company makes to subcontractors, including Canadian resident subcontractors who may work for your business outside the country.

You needn't report payments to subcontractors providing such non-construction services as janitorial work or bookkeeping.

So, do you qualify as a construction business? The answer is yes if you are an individual, trust, partnership or corporation and derive at least 50 per cent of your revenue from construction.

If your business does not meet that requirement, it isn't required to report subcontractor payments even if the work involved qualifies as construction. However, in those cases you may have to file T4A slips if you paid more than $500 for the services.

The definition of construction encompasses erecting buildings, roads, and bridges, as well as: installation; alteration; modification; repair; improvement; demolition; dismantling, and removal.

Subcontractors are defined as individuals, partnerships, or corporations offering any of the above services, including businesses whose taxable sales fall under the $30,000 limit for registering for GST, HST or QST

All amounts paid or credited to a subcontractor for construction services must be reported, including:

  • Payments by cheque or cash.
  • Barter payments based on the fair market value of the goods or services.
  • Payments offset against amounts owing.
  • Payments for mixed goods and services if the service component is at least $500.

You may report the payments on a calendar or fiscal year basis, but the report is due within six months of the end of the reporting period.

Contract payment information should be reported separately for each subcontractor on a Statement of Contract Payments(T5018 slip)and a Summary of Contract Payments(T5018 Summary). Revenue Quebec requires the completion of form TP.1086.R.23.12, The T5018 slip must contain the total amount paid, including GST, HST and QST, as well as the subcontractor's name as it appears either on invoices on on your cheques, business number and GST registration number or Social Insurance Number. (If a cheque is made out to more than one subcontractor to ensure that both are paid and to avoid liens against the job, you should file the report for the subcontractor with whom you dealt directly.)

The subcontractor's address should be reported wherever possible but this is not mandatory. It is recommended that you provide the subcontractor with a copy of the T5018, but this is also not mandatory.

You may substitute a listing of payments to subcontractors for the slips and summary, but you must list the information in columns on a line-by-line basis. Include the same information as you would on the T5018 forms plus the total number of subcontractors. An authorized signatory of your business must sign the list.

Contact us about your requirement to comply with the tax departments’ Contract Payment Reporting System. The costs for failing to comply are high (see below).

The High Cost of Tardiness

If you file your subcontractor reports late, count on spending quite a large sum of money in penalties.
CRA's penalties for late filing are $25 a day per slip, with a minimum penalty of $100 and a maximum of $2,500 per slip.

If you hire a large number of subcontractors, this can quickly add up. Say you had 300 subcontractors and were 100 days late in filing your reports. The penalty could amount to $750,000. Even if you had just 20 subcontractors your business could face bankruptcy with a penalty of as much as $50,000.

CRA's Voluntary Disclosure Program offers relief from penalties and interest for late filing under some circumstances, but to qualify the slips must be more than one year late.

For more information:

Joe Havas, CPA, CA,
Partner
Tel: 514-842-3911 ext 231

Email: