Budgets bring changes for payroll

Payroll departments may have to implement tax and legislative changes this year and next because of recent budgets. Here is a look at payroll-related announcements from three provinces this year: 

British Columbia

The budget, released on Feb. 16, did not propose changes to personal income tax rates or brackets. However, Finance Minister Michael de Jong did propose changes to the tax reduction credit, which is included in income tax deduction calculations.

The tax reduction credit is a non-refundable credit for individuals whose annual income is below a certain amount. For individuals with annual incomes of no more than $19,171, the tax reduction credit reduces income tax payable by up to $436. Individuals with an annual income between $19,171 and $31,628.14 are eligible for a partial reduction.

The budget proposes to increase the threshold for the maximum reduction to $19,400 and increase the factor used to calculate the credit from 3.5 per cent of net income to 3.56. The changes would take effect for the 2016 tax year. It is expected the Canada Revenue Agency (CRA) will implement them on July 1, with amounts prorated to cover the entire year.

The budget also proposes to change the way premium rates are calculated for the Medical Services Plan (MSP), beginning next year. The changes include eliminating children from the premium calculation and moving from three maximum premium rate categories to two. Family premium rates would no longer exist. Currently, the MSP has an individual rate, a rate for a family of two and a rate for a family of at least three. The maximum monthly premium rate for a family of two is $136 and for a family of three or more it is $150.

The budget proposes two categories, one for single adults and one for couples. The maximum rate for a single adult would increase to $78 from $75 and the rate for an adult couple would be $156 (double the single rate).

With the change, a household with one parent and two children, for example, would pay the single adult premium rate, rather than a three-person rate.

The government also proposes to make changes to the threshold it uses for providing MSP premium assistance to lower-income households.

More information on the proposed changes is available in the budget documents at bcbudget.gov.bc.ca/2016/default.htm.

New Brunswick

In the budget, tabled Feb. 2, New Brunswick Finance Minister Roger Melanson announced plans to eliminate the top marginal personal income tax rate of 25.75 per cent and to reduce the second highest to 20.3 from 21. The proposed changes are retroactive to Jan. 1, but will not be implemented until July 1.

The new rate would apply to taxable income over $150,000. The tax bracket would be indexed beginning next year.

The provincial government only implemented the 21 and 25.75 per cent rates last year. Melanson says the changes are in response to the federal government introducing a new top marginal federal income tax rate of 33 per cent on taxable income over $200,000 as of Jan. 1.

The CRA says it will prorate the new rates to ensure payroll departments deduct the appropriate amount of income tax for the entire year. The agency says it expects to release updated payroll deductions tables and formulas which incorporate the changes by the end of May.

Melanson also announced the government would raise the provincial portion of the HST to 10 per cent from eight on July 1. The change will increase the overall HST rate to 15 per cent from 13.

Ontario

The budget, which Finance Minister Charles Sousa delivered on Feb. 25, did not contain any payroll-related changes. Instead, it laid out possible changes for coming months and years.

The budget announced it would postpone the phasing-in of the Ontario Retirement Pension Plan (ORPP) by one year, to 2018, to give employers more time to prepare and allow the government more time to work on possible changes to the Canada Pension Plan (CPP) that may negate the need for the ORPP.

If implemented, it would run like the CPP, with mandatory contributions from employers and employees. Participation in the plan would be mandatory for ages 18 to 70 if not part of a workplace pension plan deemed comparable to the ORPP.

The contribution rate for the ORPP would be up to 1.9 per cent for both employers and employees, for a combined rate of 3.8 per cent on pensionable earnings, up to an annual maximum earnings threshold of $90,000. The government recently confirmed the minimum earnings threshold for contributions would be $3,500.

The ORPP Administration Corporation, which is responsible for running the plan, will begin verifying which employers need to sign up and enrolling them next year. ORPP contributions are scheduled to begin in 2018 for large and medium-size employers without registered workplace pension plans.

Large employers are those with 500 or more employees. Medium-size employers are organizations with 50 to 499 employees. The contribution rate would be 0.8 per cent in 2018, rising to 1.6 per cent in 2019 and to 1.9 per cent in 2020.

Small employers (fewer than 50 workers) would start contributing to the ORPP in 2019 at a rate of 0.8 per cent. The rate would rise to 1.6 per cent in 2020 and to 1.9 per cent in 2021. Employers with registered pension plans that either did not meet a comparability test or did not cover all classes of workers would begin contributing to the ORPP in 2020, with their contribution rate set at 1.9 per cent.

Sousa says the government will table legislation this spring that will set out the requirements of the ORPP, the rules relating to plan funding, and how the government will ensure employers and employees comply. Although the budget did not include any changes to personal income tax rates, it did note the government plans to look at ways to simplify its personal income tax calculation. The examination will include the Ontario surtax and Ontario Tax Reduction. The budget did not say when the review would occur.

The budget also included announcements that could bring changes for payroll and HR departments in the future. An interim report on a government-commissioned review of the province’s Employment Standards Act, 2000 and Labour Relations Act, 1995 is expected soon. A final report will be released this summer.

A committee studying issues around a gender wage gap in Ontario is expected to make its recommendations in May.

The government will review its Apprenticeship Training Tax Credit to ensure it encourages employers to help apprentices gain the certifications and skills they need. Further details will be released later this year. 

The government will continue consulting on a new regulatory framework for target benefit multi-employer pension plans (MEPPs), which combine features of defined benefit and defined contribution pension plans. They "target" a specific pension benefit and are funded by fixed contributions. The government released a consultation paper last year, but concerns were raised about challenges some MEPPs may face moving to a new framework and implementing new funding rules.

The government plans to table amendments to its Pooled Registered Pension Plans Act, 2015 to further harmonize it with legislation in other jurisdictions. Budget documents also note the government is currently developing regulations to implement pooled registered pension plans and create an appropriate test to determine comparability with the ORPP.

This spring, the government proposes to launch an online consultation to find ways to make it easier for businesses to interact. Called the Red Tape Challenge, the exercise will identify and eliminate duplication, lessen compliance burdens, and shorten response times.

The tuition and education tax credits for students will be eliminated, beginning in the fall of 2017. Employees can claim anon-refundable tax credit for tuition and education amounts on a TD1ON, Ontario Personal Tax Credits Return, which they file with their employer.

The Nunavut government also released a budget in February, but it did not contain any payroll-related proposals.