Annie Chong, manager of Carswell’s payroll consulting group, fields questions from readers
Question: Under our wage-loss replacement plan, we pay benefits directly to employees who are off work due to things such as illness or disability. Are these benefits subject to source deductions?
Answer: Benefits provided under a wage-loss replacement plan are subject to employment insurance (EI) and Quebec Parental Insurance Plan (QPIP) premiums as well as income tax deductions if they are paid to an employee from a wage-loss replacement plan the employer is responsible for funding.
The benefits are also subject to EI and QPIP premiums and income tax deductions if a trustee or an insurance company pays the benefits to an employee under a wage-loss replacement plan where the employer funds any part of the plan, exercises a degree of control over the terms of the plan and determines the eligibility for benefits.
The payments are not subject to Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions.
Wage-loss benefits are not subject to CPP or QPP contributions or EI and QPIP premiums if an employee receives benefits from a trustee or insurance company and the employer does not control the terms of the plan or eligibility for benefits.
The benefits are taxable, however, no income tax deductions are required.
Question: I understand the Canada Revenue Agency (CRA) is making changes to the T4A. Will the changes affect how we report group term life insurance benefits for retired employees?
Answer: The CRA has redesigned the T4A to change it from a fixed field format to a generic style similar to the T4. The new format will simplify reporting requirements, reduce the burden for the filer, and increase data quality.
The new form is to be used beginning with the 2010 year end reporting. Despite the change to the format, employers are still required to report group term life insurance benefits provided to former employees on the T4A.
However, instead of reporting the benefit in boxes 28 and 38 using code 19, employers will report the benefit in a new section on the form entitled “other information,” using code 119.
Question: We have some employees who are on unpaid leaves of absence, but are still taking part in the company pension plan. Do we have to report a pension adjustment (PA) for these employees?
Answer: Yes, you must report a PA for these employees. A PA is the measure of the benefit or accrual that an individual earns in a year within a registered pension plan or deferred profit-sharing plan that an employer sponsors. The PA is important because it can reduce the amount an individual can contribute to an RRSP.
For employees on an unpaid leave of absence who continue to accrue a pension benefit, report the PA in box 52 of a T4 even if the employee did not earn employment income in the year. Administrators of a multi-employer plan may report the benefit on a T4A, but must first apply to the CRA’s registered plans directorate to do so. If the PA is zero, leave the box blank. For information on calculating a PA for employees on a leave of absence, refer to the CRA’s pension adjustment guide (T4084).
Annie Chong is manager of the payroll consulting group at Carswell, a Thomson Reuters business, which publishes the Canadian Payroll Manual and operates the Carswell Payroll Hotline. She can be reached at [email protected] or (416) 298-5085.
