It’s that time of year, yet again: Year end. There are a lot of I’s to dot and T’s to cross — so here’s a look at a rundown of key items for payroll professionals to keep in mind.
T4 reporting requirements
Box 24 insurable earnings and box 26 pensionable earnings must always be completed. These boxes are no longer left blank when an individual is at the annual maximum or the amount is the same as box 14 employment income.
Employers must report the total insurable and pensionable earnings in each of the respective boxes up to the annual maximums. If pensionable or insurable earnings are zero, then "$0" must be entered in the boxes. For 2013, the maximum pensionable earnings are $51,100 while the maximum insurable earnings are $47,400.
The end of the third quarter is an ideal time to check for Canada/Quebec Pension Plan (CPP/QPP) and employment insurance/Quebec Parental Insurance Plan (EI/QPIP) premium deficiencies. The Canada Revenue Agency (CRA) calls this the Pensionable and Insurable Earnings Review (PIER) and Revenu Québec has similar reports — one for QPP deficiencies and another for QPIP deficiencies. Use the standard PIER audit reports to correct or make adjustments prior to running year-end information slips.
Remember that in 2013, the QPP contribution rate is different from the CPP contribution rate. The 2013 QPP rate is 5.1 per cent while the CPP rate remains at 4.95 per cent.
If you provide pensionable taxable benefits (non-cash) and no other remuneration is paid in a pay period (for example, an employee is on an unpaid leave of absence and the employer continues to provide benefits during the leave), the benefits provided are still pensionable earnings and should be included in boxes 14 and 26.
For stock option benefits, include the amount of the benefit in the pensionable earnings box since stock option benefits are subject to CPP contributions, regardless of cash remuneration in the pay period.
For Quebec, you must always enter an amount in box G even if the pensionable earnings are zero. Calculate an amount for box G based on the amount in:
•box A of the RL-1, minus the total of any excepted amounts described in the RL-1 guide
•box Q, minus the total payments included in that box that were made with regard to an employee before and during the month he turned 18
If the result is equal to zero, enter "$0" in box G. Otherwise, enter the total amount based on the calculation above.
Remember that QPP contributions must be withheld from remuneration paid to an employee during the year, even if the employee is 70 years old or older or receives a retirement pension under the QPP or CPP.
You must always enter an amount in box I, even if the insurable salary or wages are equal to zero. The amount should not exceed the annual maximum insurable salary or wages under the plan — in 2013, the amount is $67,500.
Balancing statutory remittances
An additional process requiring attention is making sure statutory remittances (even those made by a third party) are in balance with the year-to-date information on your payroll registers and general ledger. Both the CRA and Revenu Québec provide employers with statements of the amounts received to date.
Make sure what has been received agrees with your payrolls. If not, to detect the cause of any differences, here are some questions to ask:
•Are the correct amounts remitted to CRA and Revenu Québec (if applicable)?
•Are there statutory deductions withheld from any manual cheques that have been remitted to CRA/Revenu Québec but not updated in the pay system and, therefore, not reflected on the payroll register? The same can be said of cancelled payroll cheques.
•Is the amount received by CRA/Revenu Québec posted to the correct account?
•Could the amount posted to your CRA business number — payroll deductions account "RP" or Revenu Québec account "RS" — belong to another RP or RS account?
•Is there a penalty or interest charged and, if so, why?
Prompt, corrective actions to any of the above situations must be taken, otherwise the balancing routine for year-end will be that much more difficult.
best practices checklist
The following checklist should help you effectively manage the year-end process.
•Download all the updated tax forms from the CRA and Revenu Québec. Many are available in fillable format PDF versions. For Quebec, the format is "Dynamic PDF."
•File returns by electronic media in XML format if filing more than 50 information slips (T4/T4A/RL-1/2). Although a paper T4/T4A Summary is not necessary when filing by electronic media, Quebec employers must still file an RL-1 Summary regardless of the number of slips filed.
•Consider filing information slips using the electronic methods available from the CRA and Revenu Québec rather than submitting paper returns of 50 or less slips.
•Obtain approval from the CRA or Revenu Québec if creating laser versions of T4/T4A/RL-1 slips.
•Review the last pay periods of the current year and the first pay periods of the next year to ensure all payments with the pay date for the current year are included in current year T4s, T4As and RL-1s, as applicable. Cheques or deposits dated in the New Year are reported in the next taxation year.
•Review any manual cheques dated in the current year to ensure they have been included in current year-end figures.
•Review all cancelled payroll journals and cancelled paycheques to ensure they are not included in current year-end figures (keep a separate file for year-end balancing).
•Verify that taxable benefits have been correctly calculated and included in taxable, pensionable and insurable income, as applicable (check with accounts payable for any personal expenses reimbursed to employees). 2013 was the first year employer-paid premiums for accidental death and dismemberment (AD&D) are reported as a taxable benefit.
•Quebec only: Ensure employer-paid premiums for health and dental premiums and AD&D are reported as a provincial taxable benefit on the RL-1 slip.
•Review each information return for employees who have been paid in other currencies to ensure all amounts reported have been converted to Canadian dollars.
•Review earnings and statutory deductions for each employee who transferred provinces during the current year. Ensure a separate information slip is issued for each province of employment.
•Review earnings and statutory deductions for each employee who transferred payroll deductions accounts (different RP accounts) or legal entity transfers (different payroll account number) to ensure a separate slip is issued for each RP or BN account under which an employee had earnings.
•If you have a reduced EI premium rate account and a regular EI premium account, ensure you have two T4 slips for any employees who transferred between the two RP payroll deductions accounts. Part-time employees who transfer to permanent, full-time positions would have two T4 slips in this situation.
•Ensure an RL-1 has been issued to each employee with taxable income subject to Quebec source deductions. Ensure the federal portion of income tax is reported on the T4 and not on the RL-1 slip.
•Review all employee year-to-date earnings and statutory deductions to ensure a T4 or T4A has been issued where required by the de minimis rules (not in Quebec).
•Retiring allowances are reported on the T4 slip using code 66 for eligible amounts and code 67 for non-eligible amounts. The codes for "Status Indian" employees are 68 for eligible and 69 for non-eligible. There is no change to the reporting of retiring allowance for a Quebec employee. The amount remains on the RL-1 slip in box O along with footnote code RJ.
•Balance source deduction remittances made for the current taxation year to: PD7A/TPZ-1015.R remittance statements; payroll register YTD totals; and T4/T4A/RL-1 run totals.
•Review employee C/QPP basic exemption and contribution amounts for the year.
•Balance EI insurable earnings to EI premiums. Insurable earnings should not be reported on the RL-1 but EI premiums withheld are reported on the RL-1.
•Balance QPIP insurable earnings to QPIP premiums. Both are reported on the Quebec T4 and RL-1 slips.
•Ensure employer RRSP contributions are not reported in box 20 of the T4 or box D of the RL-1. Employer contributions to employees’ RRSPs are considered a taxable benefit and reported on the T4/RL-1 slip in boxes 14/40 and A/L. Employee contributions to RRSPs are not reported on a T4 or RL-1 slip — the financial institution or third party administering the RRSP program issues the receipt.
•Ensure a pension adjustment (PA) is correctly calculated and reported in box 52 of the T4. PAs are not reported on RL-1 slip. PAs are reported for employees who belong to registered pension plans (RPPs) or deferred profit-sharing plans (DPSPs) not RRSPs. Box 50 is for the registration number of the plan. An entry in box 20 (RPP contributions) of the T4 slip requires a PA amount in box 52 and registration number in box 50.
•Review any terminations in the year to ensure a T10 is completed for all terminations where pension adjustment reversal (PAR) reporting is required.
•For paper returns, ensure a T4/T4A summary is prepared for each separate CRA Payroll Account Number/RP Payroll deductions account. Regardless of paper or electronic returns, you must prepare an RL-1 summary for each Quebec payroll deductions account number (RS).
Remember, each payroll can be unique — be sure to add your own reminders to ensure year-end reporting is completed accurately and on time.
Kimberley Fiume is director of compliance and client services at LeadingEdge Payroll Group in Newmarket, Ont. She can be reached at firstname.lastname@example.org.