Budgets propose mix of changes

For payroll, this year’s federal budget could be summed up by saying, "No changes to CPP contributions, EI premiums or federal income tax deductions this year." But that would not tell the full story.

Although this year’s budget, which Finance Minister Joe Oliver tabled on Apr. 21, did not contain any adjustments to source deduction rates for 2015, it did include a number of payroll-related proposals.

Beginning next year, the budget proposes to change the rules for source deduction remittances for new employers so they can send in remittances quarterly instead of monthly. To qualify, new employers must have monthly withholdings of less than $1,000 and maintain a perfect compliance record with the Canada Revenue Agency (CRA). Remittances would be due on Apr. 15, Jul. 15, Oct. 15 and Jan. 15 of the following year.

Currently, new employers have to send in remittances monthly for at least one year.
Afterwards, they may be eligible for quarterly remitting if they have an average monthly withholding amount of less than $3,000 and have shown a perfect compliance record over the previous 12 months.

The budget also proposes to exempt some non-resident employers from withholding and remitting income tax source deductions from payments made to non-resident employees who are covered under a tax treaty. The proposed measure would apply to payments made in 2016 and later years.

Currently, employers are required to deduct income tax from non-resident employees and remit it to the CRA even if the employee is exempt from Canadian income tax under a tax treaty that Canada has signed with another country. Employers may obtain a waiver from the CRA for a particular employee, but the government says the waiver system is inefficient as it only applies to a specific employee for a specific time period.

To qualify for the proposed exemption, a non-resident employee would have to be exempt from Canadian income tax under a tax treaty and could not be in Canada for 90 or more days in any 12-month period that includes the period in which the employer made the payment.

For an employer to qualify, it would have to be resident in a country with which Canada has a tax treaty. The employer would also not be allowed to carry on business through a permanent establishment in Canada in the fiscal period in which it made the payment to the employee. In addition, at the time of the payment, the employer would have to be certified as exempt by the minister of National Revenue.

Exempt employers would still be responsible for reporting amounts paid to non-resident employees. They would also have to collect and remit income tax from non-resident employees who did not qualify for the exemption, although they would not be penalized for failing to deduct income tax if they had no reason to think the employee did not qualify for the exemption when they made the payment.

In the budget, Oliver reiterated a previous announcement that the government would introduce a new method for setting EI rates in 2017. The new seven-year break-even method would ensure EI premiums are no higher than necessary to pay for the EI program over time and would result in lower EI rates, Oliver said. The Finance Ministry estimates rates would drop from 1.88 per cent in 2016 to 1.49 per cent in 2017.

Other proposals in the budget that may affect payroll include:

• The period in which eligible individuals may receive EI compassionate care benefits would be extended from six weeks to six months, beginning next year.

• The Canada Labour Code would be amended to increase the amount of bereavement leave federally regulated employees could take and introduce new unpaid leaves for employees with family responsibilities. Currently, employees covered by the code are entitled to three days of bereavement leave. The time off is with pay for employees who have been continuously employed for at least three consecutive months. The code would also be amended to add protections for unpaid interns in federally regulated workplaces.

• An EI Working While on Claim pilot project would be extended to August 2016. The project allows EI claimants to keep 50 cents of their EI benefits for every dollar they earn, up to 90 per cent of weekly insurable earnings used to calculate the benefits.

• The annual contribution limit for tax-free savings accounts would increase from $5,500 to $10,000, beginning this year.

• The disability and sick leave management system for federal public sector workers would be modernized, including replacing the current system of banking sick days with a short-term disability plan.

• The Business Number identification program would be extended beyond the CRA to other departments.

• The government would create a Small Business Consultation Forum this year, involving the CRA and the Canadian Federation of Independent Business (CFIB). It would meet twice a year and provide the CRA with feedback from small and mid-size businesses on tax administration issues.

• The CRA would continue to implement measures to provide better service, including improving the use of plain language in its communication, developing a plain-language guide to help businesses understand and prepare for CRA audits and working to ensure taxpayers "can rely on written information" they receive in letters from the CRA and on its website.

Both the Canadian Chamber of Commerce and CFIB praised the budget for taking the needs of small businesses into consideration. CFIB president Dan Kelly called it "a terrific budget for small business."

The Canadian Payroll Association (CPA), however, said the budget should have had more in it for other employers.

"The focus on micro and small employers with straightforward payrolls seems unbalanced when larger employers annually pay billions of dollars in undue administrative burden such as paper T4s and Requests for Payroll Information," CPA president Patrick Culhane said in a news release.

He added that the association would have liked to see measures to allow employers to issue electronic T4s to employees as a standard practice.

"(This) would negate the need for distributing and storing millions of paper T4 slips for employees who do not require a paper copy and could provide employers annual savings of over $100 million — at no cost to government," Culhane said.

"It is ridiculous that the government is using eT4s as the standard for its 250,000 employees, but not enabling employers to do the same."

In addition, the Newfoundland and Labrador government recently tabled annual financial plans.

The Newfoundland and Labrador budget included an announcement the government would create two new tax brackets and tax rates, effective for 2015 and later years. A new rate of 13.8 per cent would apply to taxable income between $125,000 and $175,000 and a new rate of 14.3 per cent would apply to taxable income greater than $175,000. The rates for taxable income up to $125,000 would not change.

For source deductions, the CRA says it will implement the changes on Jul. 1 and will pro-rate the two new rates for the rest of the year to take into account the mid-year rate change. The CRA will post updated payroll deductions tables and computer formulae with the changes on its website.

The Newfoundland government also announced it would raise the provincial portion of the Harmonized Sales Tax (HST) from eight per cent to 10 per cent on Jan. 1, 2016. As a result, the HST rate would rise from 13 per cent to 15 per cent.

In Manitoba, the provincial budget did not include any rate changes for personal income taxes or the Health and Post Secondary Education Tax Levy. It did contain an announcement the government would raise the general minimum wage rate from $10.70 an hour to $11 on Oct. 1.

The budget also included a new tax credit for volunteer firefighters and search and rescue volunteers, beginning this year. In addition, it proposed enhancements to tax credits for employers that hire apprentices, co-op students and graduates.