Where Do I Report a T4PS Form on My Tax Return?

A T4PS slip is a tax form issued to employees who receive income from employee profit-sharing plans (EPSPs) in Canada. If you’ve received one, it means you have reportable earnings from such a plan. Failing to properly report this income can lead to reassessments or penalties from the Canada Revenue Agency (CRA).

Understanding how to correctly include the information from your T4PS on your tax return ensures compliance and helps avoid complications.

Purpose of T4PS

The T4PS slip documents income earned through an employee profit-sharing plan (EPSP), ensuring participants report these amounts for tax purposes. Unlike regular employment income reported on a T4 slip, EPSP distributions have distinct tax implications. The CRA uses the T4PS to track these earnings and verify their inclusion in taxable income.

A key reason for issuing a T4PS is to separate EPSP income from wages. Since these plans distribute profits rather than salaries, the tax treatment differs, particularly regarding deductions and potential additional taxes. Employees who own at least 10% of their employer’s shares may be subject to the “specified employee” rules under section 144(10) of the Income Tax Act, which can result in additional tax on excessive allocations.

EPSP income is fully taxable and can affect overall tax liability. A large distribution may push someone into a higher tax bracket, impacting their income tax rate and eligibility for income-tested benefits like the Canada Child Benefit (CCB) or Old Age Security (OAS). Understanding these implications allows individuals to plan for potential tax installments or deductions.

Required Fields on T4PS

A T4PS slip contains several fields that must be accurately reported.

– Box 35 reports the total amount of allocations from the profit-sharing plan. This represents the taxable portion of the distribution received during the year.

– Box 36 records any deductions made at the source. If an employer withheld tax on the EPSP distribution, the withheld amount appears here, reducing the balance owing when filing a return.

– Box 37 reports the fair market value of shares received under the plan. If the EPSP distributes company shares instead of cash, the CRA requires taxpayers to report the value of those shares as income.

In some cases, additional boxes may report adjustments or corrections from prior years. If an employer revises a previously issued T4PS, the new slip reflects changes, and taxpayers must use the updated figures when filing.

Reporting on Tax Returns

The amounts reported on a T4PS slip must be accurately recorded on a tax return.

– Box 35 allocations are entered under “Other Employment Income” on Line 10400. These are taxable earnings, distinct from wages.

– EPSP income is fully taxable in the year it is received. Unlike RRSP contributions, which reduce taxable income, EPSP allocations do not provide an immediate tax shelter. However, making RRSP contributions before the February 29, 2025 deadline for the 2024 tax year can offset some of the additional income and lower overall tax liability.

– For those receiving company stock as part of an EPSP, the value of the shares at the time of allocation is taxed as income. Future gains or losses when the shares are sold may be subject to capital gains tax. If an employee later sells the shares at a higher price, only 50% of the capital gain is included in taxable income. Keeping track of the adjusted cost base (ACB) ensures accurate reporting when shares are eventually sold.

Corrections and Amendments

Errors on a T4PS slip can lead to discrepancies in a tax return, potentially triggering reassessments or penalties. If incorrect amounts are reported, verify the details with the employer or plan administrator. Employers can issue an amended T4PS, and the updated slip should be used when filing or adjusting a return.

If a tax return has already been submitted using incorrect information, adjustments can be made through the CRA’s “Change My Return” service in My Account, or by filing a T1-ADJ Adjustment Request. Supporting documents, such as the revised T4PS or a letter from the employer, should be included. Electronic requests are typically processed faster than paper submissions.

Importance of Retaining Documents

The CRA requires taxpayers to keep supporting documents for at least six years from the end of the tax year. This ensures individuals have records in case of an audit, reassessment, or dispute.

Since EPSP allocations can have long-term tax implications, such as when shares are later sold, keeping accurate records helps avoid discrepancies when calculating future capital gains or losses. Tracking multiple EPSP distributions over several years aids in tax planning, particularly when considering RRSP contributions or other deductions.

Retaining T4PS slips and related documents also simplifies the process if an employer issues a corrected slip after a return has been filed. Digital storage solutions, such as scanning and saving copies in a secure cloud-based system, help ensure records remain accessible and protected from loss or damage.