Canadian Payroll Reporter

6 Canadian HR Reporter, a Thomson Reuters business 2016 News May 2016 | CPR new workers and those re-enter- ing the workforce. The budget did, however, in- clude the following proposals that may affect some employers: • The government plans to extend its Working While on Claim Pilot Project until Au- gust 2018. The pilot project allows individuals who work while receiving EI benefits to earn the greater of $50 or 25 per cent of their weekly EI benefits before Service Canada reduces the benefits dollar for dollar. The pilot project was scheduled to end on Aug. 6. • Service Canada will increase the maximum length of its Work-sharing Program from 38 weeks to 76 weeks. The program allows eligible em- ployers to temporarily cutback on workers' hours during an economic downturn. Instead of being laid off, employees share available work while receiving EI benefits for the days they are not working. • The government will reduce the waiting period for EI ben- efits from two weeks to one week, beginning next January. The budget did not contain any announcements on future EI premium rates. During last year's election campaign, the Liberal Party said it would reduce EI pre- mium rates from 1.88 per cent to 1.65 per cent in 2017. It also promised a 12-month EI pre- mium holiday for employers who hire young people aged 18 to 24 years in 2016, 2017 or 2018. The Canadian Federation of Independent Business (CFIB) said it was unhappy with the omission of the premium holiday from the budget. "CFIB applauded the Liber- als when they announced this measure, and we are deeply dis- appointed that they have aban- doned this commitment," said CFIB President Dan Kelly. CPP concerns The CFIB, along with other business groups, also expressed concern about possible changes to Canada Pension Plan (CPP) contribution rates. Morneau did not propose any adjustments to CPP rates in the budget, but he left open the possibility of later rate increases. The government plans to hold public consultations on ways to enhance the CPP. The federal and provincial/territorial gov- ernments are in discussions on possible changes to the plan, with a goal of making a decision by the end of the year. Labour and social policy groups have called on the federal government to gradually raise CPP rates to fund more generous benefits for retirees. Business groups have generally opposed this, recommending instead that the government add a voluntary contribution to the CPP to pay for any benefit improvements. The CFIB said it was alarmed that the government wants to reach an agreement on CPP ex- pansion with the provinces/ter- ritories by the end of the year. "If there was going to be one promise to defer in the budget given the state of the economy, it should have been the commit- ment to hike CPP/QPP payroll taxes," Kelly said. "Two-thirds of small firms say they will have to freeze or cut salaries and over a third say they will have to reduce hours or jobs in their business in response to a CPP/QPP hike," he added. While the budget did not pro- pose any changes to personal in- come tax rates or tax brackets, it did include proposals that would affect some of the tax credits em- ployees claim on a federal TD1, Personal Tax Credits Return. The government plans to elim- inate the education and textbook tax credits claimed on the form, as of next January. It also pro- poses to increase the maximum amounts that individuals can claim for living in a prescribed zone, beginning this year. Individuals who live in the Northwest Territories, Nunavut, Yukon, or another prescribed northern zone for more than six continuous months in a calendar year may claim up to $8.25 for each day they live there or up to $16.50 per day if the individual is the only one in the household claiming the residency deduc- tion. Residents living in pre- scribed Intermediate Zones can claim half of the amount. The budget proposes to raise the maximum deductions to $11 and $22, respectively. The Canada Revenue Agency (CRA) has revised the federal TD1 to incorporate the change to the northern resident's deduc- tion. Another income-tax related proposal that may affect payroll departments is a plan to reinstate a 15 per cent tax credit that ap- plies to the purchase of shares of provincially registered labour- sponsored venture capital cor- porations (LSVCCs). The change would apply for 2016 and later tax years. When calculating federal in- come tax deductions, payroll practitioners must subtract the LSVCC tax credit for the year, if applicable, from an employ- ee's annual basic federal tax. The credit is currently the less- er of $250 and five per cent of the amount deducted or with- held during the year for the em- ployee's acquisition of approved shares of the capital stock of a prescribed LSVCC. The previous Conservative government announced in 2013 that it would phase-out the fed- eral tax credit by lowering its parameters from $750 and 15 per cent to $500 and 10 per cent in 2015 and to $250 and five per cent in 2016. The tax credit was to be fully eliminated in 2017. Stock options One income tax proposal that was not in the budget was a change to the way the govern- ment taxes stock option taxable benefits. During the election campaign, the Liberals said they would limit the amount that employees can claim for stock option deductions. The Income Tax Act allows employees who meet certain conditions to de- duct from their income 50 per cent of the amount of a taxable benefit related to a stock option. Morneau said he left the meas- ure out of the budget because during pre-budget consultants he heard from many in the busi- ness community that the deduc- tion was a helpful way to attract and retain high-performers. While payroll professionals may be relieved to know that they will not have to implement stock option deduction changes, they may have to contend with more CRA scrutiny. The budget proposes to pro- vide the CRA with $351.6 million over five years to improve its abil- ity to collect outstanding taxes. Budget documents also state that the CRA will hire more auditors and tax specialists to improve tax compliance. The move could re- sult in more audits of employers' source deduction practices. T4 disappointment There was also some disappoint- ment in the payroll community that the budget did not include measures to reduce paperwork for employers. The Canadian Payroll Association (CPA) said it was frustrated that Morneau made no mention of legislative or policy changes that would al- low employers to issue electron- ic T4s to employees as a standard practise. Currently, employers need employees' consent to is- sue their T4s electronically. "We are disappointed that the federal government has not moved forward with this huge paper burden reduction, es- pecially when the government distributes electronic T4s to its quarter‐million employees," said Patrick Culhane, president and CEO of the CPA. The association said elec- tronic T4s would save employ- ers over $100 million a year and would not cost the government anything to implement. In addi- tion, it said CRA data shows em- ployers filed 88 per cent of the 26 million T4s produced in 2014 electronically and 86 per cent of Canadians filed their income tax returns electronically. The association said it was also disappointed that the budget did EI benefits waiting period 1 week starting 2017 from BUDGET on page 1 see CPA page 8 CFIB, along with other business groups, also expressed concern about possible changes to Canada Pension Plan contribution rates.

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