How do I reconcile differences between the T4A box 48 & my revenues invoiced for 2017 on my tax return?

[Zig]

I recently received from one of my clients a T4A for 2017. They based the amount in box 48 on the payments made in 2017 (i.e., payments covered invoices from Nov. & Dec. 2016 and Jan. to Oct. 2017). My business is set-up based on the accrual accounting method and now my revenue from this client doesn't match the T4A.  How do I reconcile the difference between the T4A box 48  my actual income invoiced for this client on 2017 my tax return?

[TurbotaxRobert]

The requirements for a payor to report an amount in box 48 of a T4A are that you must report amounts that you "pay" for fees of other amounts for services.  Therefore, a payor is not allowed to report amounts in box 48 on an "accrual" basis.

From an accounting perspective and to avoid CRA conflicts in the reporting of the box 48 amount transferred to a business statement, the solution is to make an "accrual adjustment" entry in either the income side of the business statement or the expense side of the business statement based on whether the accrual adjustment required is a net positive or a negative amount.

As an example, if the box 48 amount covered payments that were accruals from Nov 2016 to Oct 2017, and the Nov 2016 and Dec 2016 invoices (paid in 2017) amounted to $2,000.00 but the accruals from Nov 2017 to Dec 2017 were $3,000, then an entry on the income side of the business statement would be made to add $1,000.00 to the income reported ($3,000 to be reported in 2017 less $2,000 already reported in 2016.

However, if in the above example, if the accruals from the Nov 2016 and Dec 2016 invoices (paid in 2017) amounted to $3,000.00 but the accruals from Nov 2017 to Dec 2017 were $2,000, then an entry on the expense side of the business statement would be made to add $1,000.00 to the expenses reported ($2,000 to be reported in 2017 less $3,000 already reported in 2016.  

Either entry on the business statement (T2125) would be entered as "accrual adjustment" and could be easily supported if audited.  This would avoid any conflicts with changing the amounts shown in box 48 of the T4A and also not require asking the issuer of the T4A to make an amendment to the T4A that technically he is not allowed to make.

[TurboTaxKim]

Often times the income reported on your T4A slip in Box 20 or Box 48 will differ from your actual Business or Self-Employed income. Here's a few options, I wish there was a better solution to this problem.

1. If you have already reported this income in 2016, you may want to omit the T4A and enter your actual invoice amounts manually on the T2125 - Business Schedule, along with your expenses. CRA would likely contact you in regards to this "missing T4A", at which point you would need to provide an explanation and possibly your invoices to support the claim.
2. Another option would be to "override" the amount in Box 48 to your figures, but again CRA would have different figures and may request supporting documents. You also would be ineligible for NetFile if you did this but could submit a letter explaining the reasoning behind the different amounts along with your paper filed return.
3. And lastly, you could contact the payer/client and request an "amended T4A". 

[Zig]

Kim,

Thanks for the information.  It is unfortunate that CRA or the tax software doesn't allow for an adjustment when completing the T2125 when the client issues the T4A based on using the cash accounting method and the consultant uses the accural accounting method when filing their tax return.  I guess I will file by hard copy and attached an explanation for the differences.

[TurboTaxKim]

It is unfortunate and frustrating for not only the self-employed person, but for us professional tax preparers as well. We are seeing more T4As issued to Self-Employed persons and quite often the figures reported do not match the invoices. As it is not correct to just "change" a t-slip, they must be filed as is. In the case of it being more income, that can be added to the T2125, but when it is less, there is no place to make that adjustment. Good luck with your filing ~ Kim

[zee_apostle]

just to clarify, i have a t4A that covers less than what was billed to the client (it covers what the client paid, minus last 2 invoices of the year paid in 2021, however part of the amount in the t4a was not gst taxable since new registrant started 2 months later yet the gst number is used as the identifier). The t4a amount ends up in the T2125 form version but theres a couple of issues:

1. there's no line for the t4a amount box 48 under easy step T2125, although it populates in the actual form and the line is in there. that's pretty confusing for reporting total business income under easy step ? why doesn'T easy step have that line and the others under T2125 (BUG?)  and autopulate?

2. total sales includes the amount from the T4a + other non T4a amounts. So under sales, I guess you would just put the balance of whatever isn't reported in the T4A? Please respond if this is the right way. You have to look at the real form to figure out that gross sales adds "sales" and T4A and t4 and T3 slip income, 

its poorly done in TT, it's as if you're reporting sales for the year that don't include t4a amounts, although clearly they should be included as business income on the first line "sale commissions or fees".