NEW CRA FOCUS ON T4A REQUIREMENTS?
BUDGET 2025 CONTAINS POTENTIALLY IMPACTFUL RULES FOR DIRECT SELLERS
Canada's Budget 2025 was launched on November 4th with the energy of a lead balloon.
Despite the doom and gloom focus on continuing deficit financing by the current Liberal Government – off-loading today’s woes onto the backs of our children and grandchildren – there was also a not-so-well-publicized change that may impact Direct Sellers.
T4A Reporting
T4A Reporting has been a continuing issue in Canada for many Direct Sellers, especially those operating outside of the traditional "buy-and-resale" model with a distributor selling to his/her own customers (think Amway and Fuller Brush).
The fundamental issue facing Direct Sellers in Canada – unlike the situation in the U.S., where 1099’s are required for all representatives – is whether T4A’s are required at all. Even more problematic are T4A-NR’s, which sometimes have to be issued to Non-Resident distributors, and which come with a 15% withholding tax obligation.
This area has been fraught with uncertainty, not only for Direct Sellers, but for all service providers. For example, why is our Law Firm NOT receiving T4A’s each year from each of our clients? The same rules would seem to apply. Historically, there was an administrative moratorium on most business-to-business relationships, but this is now changing.
2025 Budget Changes
Budget 2025 announced some key measures aimed at T4A compliance. First, businesses will be required to issue T4A's to all service providers (individuals, sole proprietors, independent contractors, unincorporated workers), unless the payee is a GST/HST registrant and provides proof of registration.
The new rules are intended to combat underground-economy activity and increase third-party reporting to CRA. Reporting will continue to capture consulting service fees. Other changes announced will allow for a sharing of information for Income Tax and GST purposes with Employment and Social Development Canada.
Impact on Direct Sellers
The new rules are expected to impact a number of Direct Sellers -- and possibly even those still operating under the "buy-resell" model.
There is no current word on whether special treatment will be afforded to Direct Sellers approved for using the ACM or NSM (and whose contractors/reps are NOT required to be registered for GST).
More Funding for More Audits?
Perhaps most worrisome is Budget 2025's commitment to provide funding for the CRA to implement a focused program that addresses non-compliance issues related to personal service businesses and reporting fees for services. Direct Sellers beware!
Direct Sellers have long struggled with Canada's T4A Reporting & Withholding Rules.
New Budget changes may bring renewed CRA Focus.
Takeaways
Direct Sellers have long struggled with Canada's T4A requirements. Budget 2025 may bring new CRA focus on this area.
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