Canadian Payroll Reporter - sample

5 Canadian HR Reporter, a Thomson Reuters business 2016 CPR | October 2016 MANAGER OF CARSWELL'S PAYROLL CONSULTING GROUP annie.chong@thomsonsreuters.com | (416) 298-5085 Annie Chong ASK AN EXPERT Clarifying bonuses for temporary, partial-year employees QUESTION: We are giving bonuses to partial-year employees for some temporary work that they did. These employees earned very little — about $3,000 — while working for us. Do we still use the bonus method* to calculate the amount of income tax to deduct? ANSWER: Whether an employer must use the bonus method to calculate income tax deductions depends on the employee's total annual earnings. If the employee's total earnings for the year, including the bonus, do not exceed $5,000, do not use the bonus method. Instead, de- duct 15 per cent (10 per cent in Quebec) from the bonus payment for income tax. Use the bonus method if the total annual earnings are more than $5,000. When calculating total annual earnings, subtract the following deductions: • employee's contribution to a registered pension plan, subject to annual maxi- mums • union dues • employee's RRSP contribution deducted at source, subject to personal RRSP limits, as long as the employer has reasonable grounds to believe that the employee can deduct the amount of the contribution for the year • employee's pooled registered pension plan contribution, as long as the employer has reasonable grounds to believe that the employee can deduct the amount of the contribution for the year • employee's contribution to a retirement compensation arrangement • deduction for living in a prescribed zone as per the federal TD1 form • other amounts that the CRA authorizes in writing. For Quebec provincial income tax pur- poses, if the employee's total earnings for 2016, including bonuses and retroactive pay, do not exceed $14,450, do not use the bonus method. Instead, deduct eight per cent provincial income tax. Use the bonus method if the total annual earnings are more than $14,450. In addition to income tax deductions, bo- nus payments are subject to Canada/Quebec Pension Plan (C/QPP) contributions and Employment Insurance (EI) and Quebec Pa- rental Insurance Plan (QPIP) premiums. *Note: The bonus method is a formula used to calculate the amount of income tax to deduct from a bonus, incentive or award. The formula is T = P (B – A), where: T = Income tax due on bonus, incentive, or award P = Number of pay periods in a year A = Tax on usual earnings for the pay period B = Tax on usual earnings for the pay period, plus the amount of the bonus (incentive or award) divided by the number of pay periods in the year ANSWER: No, it is not a death benefit. Death benefits are discretionary payments usually made to recognize a deceased em- ployee's service. Vacation pay is a legislated requirement. The payment of unused vacation pay is regular employment income and is subject to normal deductions for C/QPP contribu- tions and income tax. The payment is not subject to EI or QPIP premiums. In Quebec, the payment of unused vaca- tion pay is also included when calculating employer contributions to the Health Ser- vices Fund and the labour standards levy, as well as in determining the employer's par- ticipation in the Quebec Workforce Skills Development and Recognition Fund. The payment of the unused vacation pay can be made "To the Estate of the late..." and is reported in box 14 of the T4 and box A of the RL-1. ANSWER: The Canada Revenue Agency considers top-ups to be payments that em- ployers make to employees in addition to their workers' compensation benefits after a workers' compensation board accepts a worker's claim. Top-up payments are subject to CPP con- tributions and income tax source deduc- tions, but not EI premiums. Report the top- ups on the employee's T4 at year end. Amounts employers pay to employees in addition to an advance or a loan while an employee is awaiting a workers' compensa- tion board ruling on a claim are not top-up payments. They are employment income and are subject to CPP contributions, EI premiums and income tax deductions. The employer must report these amounts on the employ- ee's T4 at year end. For employers in Quebec, top-up payments paid after the Commission des normes, de l'équité, de la santé et de la sécurité du travail has accepted an employee's claim are subject to QPP contributions and provincial income tax, as well as employer contributions to the Health Services Fund, labour standards levy and the Workforce Skills Development and Recognition Fund. They are not subject to premiums for the Quebec Parental Insurance Plan. Employers must report top-up payments on an employ- ee's RL-1 at year end. Understanding source deductions on vacation pay for deceased employees QUESTION: One of our employees recently died. He had not used the vacation time he had earned for the year so we are paying it out to his estate in a lump sum. Do we deduct source deductions from this payment or is it considered a death benefit? Understanding source deductions and workers' compensation top-ups QUESTION: We have agreed to top up an employee's workers' compensation benefits. Do we have to take source deductions from the top-up amount?

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