Canadian Payroll Reporter

News July 2018 | CPR News Cash versus near-cash? Distinction is important Eligible vs. non-eligible amounts for retiring allowanc- es: Employees with years of ser- vice with their employer before 1996 may directly transfer some or all of a retiring allowance to their RRSP or RPP without in- come tax deductions. The CRA calls this the "eligible" amount. The "non-eligible" amount is the remainder. The eligible amount consists of a maximum of $2,000 for each year or partial year of service before 1996, as well as $1,500 for each year or part year before 1989 in which the employee did not belong to the employer's pension plan or deferred profit- sharing plan or in which the em- ployee belonged to the plan, but the employer's portion was not vested in the employee when it paid the retiring allowance. The CRA allows individuals to transfer all or part of the non- eligible amount to their or their spouse/common-law partner's RRSP without tax deductions if the amount transferred does not exceed the employee's annual RRSP deduction limit. The CRA advises employers to take steps to ensure that the employee has the deduction room prior to transfer. At year end, the eligible amount is reported on a T4 in the "Other Information" area, using code 66 (code 68 if the in- dividual is an Indian, as defined under the Indian Act, with tax- exempt income). Use code 67 (or 69 for Indians) for the non-eligi- ble portion. Employee as primary bene- ficiary vs. employer as primary beneficiary: This is an impor- tant concept when determining whether employer-provided benefits are taxable. In general, if an employee is the primary beneficiary of the benefit, it is taxable and has to be included in the employee's income for pay- roll deductions. If the employer is the one who mainly benefits, there is no taxable benefit. The CRA states that the per- son who is the primary benefi- ciary is a question of fact. To de- termine the primary beneficiary, it advises employers to examine why they are providing the ben- efit since this "often offers clues as to the identity of the primary beneficiary." For example, if an employer pays for an employee's mem- bership in a professional or- ganization and belonging to the organization is a condition of employment, the employer could argue that it is the pri- mary beneficiary. If member- ship benefits the employee, but is not a requirement for the job, the employee is likely the pri- mary beneficiary. The CRA advises employers to keep records to back up their position on who is the primary beneficiary in case it requests them during an audit or compli- ance check. Cash vs. near-cash vs. non-cash benefits: Cash ben- efits are benefits provided in the form of money, cheques, di- rect deposit, allowances and reimbursements. Examples include a meal al- lowance or reimbursement of an employee's personal cell phone charges. Near-cash benefits are items that function as cash or that can be easily converted to cash, in- cluding gift cards or stocks and securities. Non-cash benefits are actual goods, services, or property, such as an employer- provided free parking space. Non-cash benefits are also called benefits in kind. Determining which category a taxable benefit falls in is impor- tant when it comes to calculating EI and QPIP premiums. (In gen- eral, taxable benefits are always subject to C/QPP contributions and income tax deductions.) Cash-based taxable ben- efits are always subject to EI and QPIP. Do not deduct EI or QPIP from near-cash or non- cash taxable benefits, with two exceptions: the value of board and lodging benefits provided to an employee during a period in which the employer pays the employee cash earnings, and the value of employer-paid contri- butions to an employee's RRSP when the employee can with- draw the amounts. Standby charge vs. operat- ing cost benefit: These are both important, but separate, compo- nents for calculating automobile taxable benefits. The standby charge is the benefit that applies simply by virtue of the employee having an employer-provided automobile available for personal use. The operating cost benefit is the ben- efit that arises with an employer- provided vehicle if the employer (or a person related to the em- ployer) pays any of the vehicle's operating expenses, including gas, insurance, and repairs and maintenance. The value of an automobile taxable benefit is the total of these two components, minus any amount that the employee reimbursed the employer dur- ing the year. The formula used to calculate the standby charge varies, depending on whether the employer owns or leases the automobile. Different calculation meth- ods also apply in certain cir- cumstances, including if the vehicle is not classified as an au- tomobile or if the employee uses the vehicle mostly for business purposes. Canada's Finance Department sets a fixed-rate each year for cal- culating the operating expense benefit. For 2018, it is 26 cents per kilometre of personal use or 23 cents per kilometre if the employee's principal source of employment is selling or leasing automobiles. There is also an optional op- erating expense calculation that employers can use if employees request it and certain conditions apply (including that the em- ployees use the automobile more than half of the time for business purposes). For more information on these terms and other, refer to the CRA's website at https:// www.canada.ca/en/services/ taxes.html. from TERMS on page 3 Published 12 times a year by Thomson Reuters Canada Ltd. 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