Annie Chong, manager of Carswell’s payroll consulting group, fields questions from readers
QUESTION: Do I use an employee’s gross or net income to determine the correct amount of federal and provincial income tax to deduct at source?
ANSWER: Income tax source deductions are calculated on employees’ net taxable income amount.
To arrive at this figure, add up the employee’s gross taxable income (including salaries, wages, car allowances, commissions, bonuses and vacation pay) and then subtract (if applicable) any employee contributions to a registered pension plan (RPP), a registered retirement savings plan (RRSP) — provided you have reasonable grounds to believe the employee can deduct the contribution — or to a retirement compensation arrangement.
Also subtract union dues (except in Quebec); a deduction for living in a prescribed zone; alimony or maintenance payments required by a garnishee or court order the employer received and is dated before May 1, 1997; and any deductions that the Canada Revenue Agency has authorized in writing.
Do not deduct Canada Pension Plan contributions or employment insurance premiums to determine the amount subject to income tax.
The requirements for calculating income tax source deductions for Quebec are similar, but not identical, to the federal requirements.
Reporting retiring allowances
QUESTION: Now that retiring allowances are reported on the T4 form, do we have to include the amount in box (14)?
