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Contractor payments go in your books as an expense, and once you’ve paid one person or business more than $500 for services in a calendar year, the CRA generally expects you to report it, usually on a T4A slip in box 048. The rule reaches sole proprietors and small corporations as well as big payers. So the habit to build is simple: collect a name, a business number if they have one, and an invoice before you pay anyone.
What do you have to record for each contractor?
Start with the invoice. It should show who did the work, what was done, the date, the amount and any GST/HST charged. Then keep the proof of payment next to it, whether that’s a bank transfer, a cheque image or a card statement line. Those three things (invoice, payment, contract or quote) are what an auditor asks for first.
Keep the contractor’s legal name and address on file too. You’ll need them if a slip is due. A one-page onboarding sheet does the job: name, address, business number or GST/HST number if they have one, what they’re doing for you and how they’ll bill. Fill it in before the first payment, not in February when you’re hunting for it.
And keep everything for six years. The CRA’s own wording is short.
Keep your records for six years from the end of the last tax year they relate to, unless you have permission from the CRA to destroy them earlier.
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The rule applies to paper and electronic files alike. Photos of receipts are fine as long as you can read them and produce them on request.
When does a payment need a T4A?
The CRA’s page on reporting fees for service says payments above $500 in a calendar year must be reported, usually on a T4A slip with the amount in box 048. Leave out GST/HST when you fill it in. Construction contract payments go on a different form, the T5018.
Here’s the part that changes often. As far as the CRA’s pages show, it isn’t assessing penalties for missing box 048 outside the trucking industry, where penalties began with the 2025 year. That could change, so file the slip anyway. The filing date is normally the end of February for the year just ended, but check the CRA page before you rely on it.
| Item | What the CRA says |
|---|---|
| Report fees for service | Above $500 in a calendar year |
| Usual slip and box | T4A, box 048 |
| Construction contracts | T5018 instead |
| GST/HST in the amount | Leave it out |
| Records | Keep six years from the end of the last tax year they cover |
Is the person really a contractor?
This is the one that catches people out. Calling someone a contractor doesn’t make them one. Outside Quebec the CRA looks at control, who supplies the tools, whether the worker can hire helpers, who carries the financial risk, and whether they can make a profit or take a loss. Quebec uses a different test, based on subordination.
Think of a bookkeeper working three days a week at your office, on your laptop, on your schedule, for one flat monthly amount. Whatever the invoice says, that looks like an employee. A web designer who sets her own hours, uses her own gear, has four other clients and quotes by the job looks like a contractor.
Get it wrong and the bill lands on you. The CRA says an employer who didn’t deduct CPP and EI owes both the employer’s and the employee’s share, plus penalties and interest. To see the size of it, run a $2,000 pay cheque through the payroll remittance calculator. With its default Ontario settings, the employer share of CPP and EI comes to $156.63 on top of the pay. Multiply that over a year and you can see why the label matters.
What does a $12,000 contractor invoice look like in your books?
Say an Ontario contractor bills you $12,000 for a job and is registered for HST. The GST and HST calculator puts the HST at $1,560.00 and the total at $13,560.00. Your books should show both numbers separately: $12,000 as the cost of the work and $1,560 as tax. If you’re registered for GST/HST yourself, ask how the tax you paid is treated. If you aren’t, the CRA’s guidance on the tax you paid decides what you can do with it.
Keeping tax on its own line also makes the bank match easy. Your bank shows $13,560 leaving, and your ledger explains every dollar of it.
The other side matters too. A contractor who earns $80,000 net pays about $13,233.57 of income tax and $8,892.90 of CPP (both halves) in Ontario, according to the self-employed tax calculator. That leaves out EI and business expenses, so it’s a ballpark. It’s why good contractors quote higher than a salary would suggest.
Where does bookkeeping go wrong with contractors?
- Paying in cash with no invoice, then having nothing to show for the expense.
- Mixing contractor costs into general expenses, so you can’t total them per person at year end.
- Recording the tax-included amount as the cost.
- Treating a long-term, full-time worker who uses your tools as a contractor.
Fix the first two by adding a “contractor” category in your software and tagging each payment with the payee. A quick profit margin calculator check on a job also shows whether the contractor cost still leaves you room.
What should you do about a payment you already made without paperwork?
Don’t leave it. Ask the contractor for an invoice now, dated honestly, and file it with the bank record. If the person can’t or won’t give you one, write a short memo with the date, the amount, the work done and how you paid, then raise it with your accountant. A late invoice isn’t ideal, but it beats a gap in the file when someone asks about it three years from now.
Our sources
The $500 rule, the box number and the misclassification wording come from CRA pages read on 30 September 2026, and the tax figures come from the 2026 data behind our calculators. The current filing date and penalty position can shift, so confirm them on the CRA site. This is an independent guide, separate from any government body.
Frequently asked questions
Do I need to issue a T4A to every contractor?
The CRA's page says fees for service above $500 in a calendar year must be reported, usually on a T4A in box 048. Construction contracts use the T5018 instead.
Does the T4A amount include HST?
No. The CRA's box 048 guidance says to leave GST/HST out of the reported amount.
How long should I keep contractor invoices?
Six years from the end of the last tax year they relate to, under the CRA's record rules.
What if the CRA decides my contractor was an employee?
You may owe both the employer and employee shares of CPP and EI, plus penalties and interest, according to the CRA.
Can I pay a contractor in cash?
You can, but you still need an invoice and proof of payment. Without them the expense is hard to support.
- Self-employed taxes in Canada: income, CPP and GST
How tax works when you are self-employed in Canada: reporting income and expenses, paying both halves of CPP, instalments and when to register for GST