Does the CRA require us to take source deductions from WLRP benefit payments?
Question: We pay benefits to employees who are on sickness or sick leave under a wage-loss replacement plan that we fund and for which we determine eligibility for benefits. Does the Canada Revenue Agency (CRA) require us to take source deductions from the payments?
Answer: Yes, the payments would be subject to Canada Pension Plan (CPP), employment insurance (EI) and income tax source deductions. This is because the plan you are describing sounds like an uninsured wage-loss replacement plan.
The CRA considers an uninsured plan to be one under which the employer provides benefits to an employee without having a formal insurance contract with an insurance carrier and the employer funds all or part of the plan, determines eligibility for benefits and has a degree of control over the terms of the plan. For year end reporting, you must report the payments on a T4.
If the plan was an insured plan (for example, a plan with a formal insurance contract with an insurance carrier whereby the insurance carrier paid the benefits to the employee and acted as an independent third party), the payments would not be subject to CPP or EI.
They would be subject to income tax, but no deductions would be required. It would be the responsibility of the insurance carrier to report the payments on a T4A.
Prorating CPP maximum contribution
Question: One of our employees who is 66 and receiving a CPP retirement pension has given us a signed and completed CPT 30 form requesting that we stop his CPP deductions as of the employee’s first pay in May (we needed the form in advance due to our payroll cut-off dates). Will we need to prorate the employee’s maximum CPP contribution since we are stopping contributions partially into the year? We have a semi-monthly payroll. The employee is paid $2,250 a pay (or $54,000 per year).
Answer: Yes, you will need to prorate the maximum amount to be deducted for CPP contributions from the employee.
CPP contributions without being prorated:
Pay period: January to April, semi-monthly pay periods
Pay per semi-monthly period: $2,250
Basic annual exemption: $3,500
Semi-monthly exemption: $3,500 ÷ 24 = $145.83
CPP contribution per pay period: $2,250 - $145.83 = $2,104.17
$2,104.17 x 4.95% = $104.16
CPP contribution from January – April (8 pay periods): $104.16 x 8 =$833.28
The prorated maximum contribution for 2012:
2012 Maximum pensionable earnings: $50,100
Annual basic exemption: $3,500
2012 contribution rate: 4.95%
Number of contributory months in 2012: four (January – April)
($50,100 - $3,500) x 4/12 x 4.95% = $768.90 (4/12 represents the number of pensionable months divided by 12).
The employee should not contribute more than $768.90 in 2012. As a result, you must prorate the employee’s CPP contributions so that they do not exceed $768.90.
Beginning with the first pay in May 2012, CPP deductions must stop.
Moving expenses for employees coming from outside Canada
Question: We are transferring an employee from our office in the United States to our head office in Canada and are reimbursing her for some of her moving expenses. Would the reimbursement qualify as non-taxable even though she is moving here from another country?
Answer: The CRA does not require that the move has to be within Canada for the reimbursement of certain moving expenses to be non-taxable.
What is important is whether the employee’s new residence is 40 kilometres closer to the new work location than was the old residence to the new work location and whether the expenses incurred are reasonable and qualify for exemption under the Income Tax Act (such as the costs of house hunting trips, transporting or storing household effects, moving personal items and selling the old residence).
Revenu Quebec notes on form TP-348-V, Moving Expenses, (which individuals use to claim moving expense deductions on their personal income tax return) that only moves within Canada apply, unless the individual incurred the expenses at a time when they were temporarily living outside the country because they were temporarily working outside Canada, were working in the U.S. and were returning to Canada every day or week.
Revenu Québec also requires the employee’s new residence be 40 kilometres closer to the new work location than the old residence for a moving allowance to be considered non-taxable.
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 firstname.lastname@example.org or (416) 298-5085.