Which of my workers need to complete a TD1X form? | How do you properly deduct income tax from commission payments? | Are summer students covered for overtime pay?
Which workers need to complete a TD1X?
QUESTION: Do employees who are paid by commission have to complete a TD1 or a TD1X when they begin working for a new employer?
ANSWER: The Canada Revenue Agency (CRA) requires all employees (including those paid by commission) to complete a TD1 (Personal Tax Credits Return) and give it to their employer when they begin working for a new employer or when they want to change amounts they previously claimed on the form, increase the amount of income tax deducted at source or claim a deduction for living in a prescribed zone.
If employees claim more than the basic amount, they must also fill out a provincial version of the form (for all provinces but Quebec).
Commission employees may choose to also complete form TD1X (Statement of Commission Income and Expenses for Payroll Tax Deductions) although the CRA does not require them to do so. The form allows employees paid partly or entirely by commission to pay a constant percentage of income tax each pay on all earnings, based on their estimated income for the year, less business-related expenses.
Employees complete the form in addition to filling out a TD1. There is no provincial/territorial version of the form.
Employees who are completing a TD1X must give it to their employer:
•by Jan. 31 of the year concerned for employees with the same employer as in the previous year
•within one month after beginning employment with a new employer
•within one month after the date they change the amount of personal tax credits claimed on a TD1, or
•within one month after their estimated total earnings or expenses for the year change significantly.
If a commission employee does not submit a TD1X, the employer must deduct income tax from the employee’s pay based on the total credits the employee claimed on the TD1.
Commission employees in Quebec must also submit form TP-1015.3-V (Source Deductions Return) and, if they want their employer to take their commission-related expenses into account when calculating income tax deductions, they must complete form TP-1015.R.13.1-V (Statement of Commissions and Expenses for Source Deduction Purposes).
How to deduct income tax from commissions
QUESTION: Our employees receive a base pay, as well as commissions on sales. We pay the commissions quarterly. How do we calculate source deductions on the commission payments?
ANSWER: For regularly paid commissions, calculate Canada/Quebec Pension Plan (C/QPP) contributions and Employment Insurance and Quebec Parental Insurance Plan premiums in the way you would for regular salary or wages.
Employers who do not pay commissions regularly (for example, they pay them only after an employee sells something, which does not happen regularly) must prorate the maximum C/QPP contribution rate for each day of work.
The way in which employers calculate income tax deductions on commissions depends on whether they pay commissions regularly to the employee and whether the employee has completed form TD1X (and form TP-1015.R.13.1-V for Quebec), claiming expenses.
If the employer pays commissions at the same time that it pays the employee’s salary and the employee has not submitted form TD1X (and form TP-1015.R.13.1-V), add the commissions to the employee’s regular pay and calculate income tax source deductions in the usual way.
If the commissions are not paid regularly or the amount of the commissions varies and the employee has not submitted a TD1X (and a TP-1015.R.13.1-V), the employer may use the bonus method to calculate the tax deductions.
For more information on this method, refer to the Canada Revenue Agency’s website at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/spcl/bnns-eng.html.
If the employee has submitted form TD1X (and form TP-1015.R.13.1-V for Quebec), the employer must take the employee’s expenses into account when calculating income tax deductions.
Overtime pay exemptions for summer students
QUESTION: Are summer students covered under employment standards requirements for overtime pay?
ANSWER: The answer depends on the type of work summer students do and the jurisdiction in which they work. Overtime rules are governed by provincial/territorial employment standards laws and the Canada Labour Code for federally regulated workplaces.
While no jurisdiction specifically excludes students working in the summer from overtime pay requirements, the type of job they are hired to do will affect whether their employer has to pay them at an overtime pay rate for overtime hours they work.
Employment standards laws in some provinces and territories exempt some types of work (farm work, landscaping work, certain types of commission sales) from overtime pay.
Some jurisdictions also exempt certain types of work at children’s camps from overtime pay requirements:
Alberta: Counsellors or instructors at an educational or recreational camp that is operated on a charitable or not-for-profit basis for children or disabled individuals or for religious purposes are not covered under the Employment Standards Code’s overtime pay requirements.
British Columbia: Employees who work as live-in camp leaders or as counsellors, instructors, therapists or child care workers are not covered under the Employment Standards Act’s overtime pay requirements if they work for a charity to help in therapy, treatment or rehabilitation programs for the disabled.
Nova Scotia: Individuals employed at a non-profit playground or summer camp are not covered under the overtime pay requirements in the Labour Standards Code.
Ontario: Students working as instructors or supervisors of children, at children’s camps, or directly in a recreational program that a charity runs are not covered under the overtime pay requirements in the Employment Standards Act, 2000.
Quebec: Students who work in a non-profit social or community organization or in a vacation camp are exempt from the overtime pay requirements in the act respecting labour standards.
