The following questions were fielded by Carswell’s Payroll Hotline Service
Answers are provided courtesy of The Canadian Payroll Manual and The Canadian Payroll Manager newsletter, published by Carswell.
Q: If an employee extends his or her business trip to include vacation time, what, if any, taxable benefit results?
A: As per Canada Customs and Revenue Agency’s (CCRA) Interpretation Bulletin IT-470 “Employee Fringe Benefits,” the taxable benefit is limited to additional “costs” the employer incurred due to the employee extending the trip. Therefore, if the employer does not incur any additional costs, there is no taxable benefit.
Q: We are paying a retiring allowance. We understand that under the Employment Insurance system, retiring allowances are not insurable. Do we still have to report the retiring allowance on the Record of Employment?
A: Yes. The entire amount of the retiring allowance is reported in BLOCK 17C “Other Monies.”
Q: Can we use lump sum tax rates when we pay out any type of lump sum payments, for example, banked overtime, bonus or retroactive pay increases?
A: No. You can only use lump sum tax rates for very specific payments as outlined by CCRA. They are classified as follows: retiring allowance, severance pay, death benefits, payouts from RRSP or RPP; redemption of an RRIF and payments from an income averaging fund.
Q: Do I have to pay summer students vacation pay?
A: Yes. All employees, regardless of their employment status, are entitled to vacation pay, as well as vacation time.
Q: We have just filed our T4s, T4As and RL-1s. We know we missed the filing deadline. What penalties will CCRA and Revenue Quebec impose on us for filing late?
A: Both CCRA and Revenue Quebec may impose penalties of $25 per day, to a maximum of $2,500, for information returns that come in past the filing deadline. Canada Customs Revenue Agency imposes a minimum penalty of $100.
Q: We make contributions on behalf of our employees to their group RRSP. Are these contributions reported in Box (20) of the T4?
A: No. The employer’s contributions to a group RRSP are taxable benefits; therefore, they are reported in Box (14) and in the “Other Information” area of the T4 (Code 40) and boxes ‘A’ and ‘L’ on the RL-1 for Quebec employees.
Q: Our company does annual pay out of vacation pay. No vacation time is taken at that time. Do we attach insurable hours to this type of payment when it is paid out?
A: No. When an employee is paid vacation and no leave is taken, no insurable hours are attached to the payment. When an employee is paid out vacation pay at termination, no hours are assigned to the payment either.
Q: I have just discovered that some of our employees overpaid Canada Pension Plan contributions in 1999. While I realize that the affected employees would have been able to recover any over-contributions on their personal income tax return for the year in question, I am not sure how the company should recover its refund of CPP contributions or is it too late to recover these amounts?
A: Employers who are entitled to refund of CPP contributions or EI premiums must complete form PD24, Statement of Overpayment and Application For Refund, and send it to the CCRA. The following summarizes the time frames within which an employer may recover its share of CPP contributions or EI premiums: According to section 38 of the Canada Pension Plan Act, employers must apply for a refund of CPP contributions within four years after the end of the year in which the overpayment occurred. According to section 96 of the Employment Insurance Act, employers must apply for a refund of EI premiums within three years after the end of the year in which the overpayment occurred. When an employer seeks to obtain a refund of QPP contributions, it must file a written request with the Minister of Revenue within four years after the end of the year in which the excess amount was paid. The request must contain all pertinent information.
Q: We have a suggestion plan at our company that rewards employees up to $500 in cash or in kind for suggestions that lead to cost savings for the company. What are the tax implications, if any, on the awards?
A: CCRA and Revenue Quebec consider these types of awards to be income to employees. As a result, cash-based awards are subject to C/QPP contributions, EI premiums and income tax deductions. Awards given in kind are considered a non-cash taxable benefit and are subject to C/QPP contributions and income tax deductions, but not EI premiums. Remember that taxable benefits are subject to source deductions in the pay period in which the employee receives and enjoys them.
Awards given in the form of cash are not subject to the GST/HST/QST. Awards given in kind are subject to the GST/HST/QST if they are not considered exempt or zero-rated supplies.
Q: We are thinking of setting up a long-term disability plan for our employees. If the employer pays the premiums for a group wage loss replacement plan, are the premiums a taxable benefit for the employees?
A: No, where an employer pays the premiums for a wage loss replacement plan that is a group plan, the premiums are not taxable benefits for the employees. However, should an individual later collect benefits from the wage loss replacement plan, the tax consequences on the benefits will depend on who paid the plan’s premiums. In general, only where the employees pay 100 per cent of the premiums will the benefits drawn from the plan be non-taxable. Benefits are taxable where the employer has paid all or a portion of the plan’s premiums.
Q: One of our employees has been subpoenaed as a witness and has to attend jury duty. Are we, as an employer, obligated to continue paying her wages while she is attending jury duty?
A: An employee called for jury duty or subpoenaed as a witness must be given time off work. Employers who fail to grant this leave are guilty of an offence and are liable for a fine or imprisonment or both.
Employers, except those in Newfoundland, are not required to pay an employee serving jury duty. However, in all provinces there is an obligation, once the jury duty ends, to reinstate the employee to the same or a comparable position, with the same wages, seniority and benefits he or she enjoyed before the jury duty leave.
Some employers (as part of their company policy) will continue to pay their employees during this absence, since the per diem rate awarded by most provincial courts barely covers travel and lunch expenses. This money, paid by the court, is considered a fee for services rendered.
Individuals whose employers will not pay them and who will, therefore, incur financial hardship, or who have other serious personal reasons, may appeal to the sheriff for an exemption from jury duty.
Q: At our company, we generally do not calculate employees’ taxable benefits until year-end, when we prepare T4s. Someone recently advised me that this is incorrect. Is this true?
A: Yes, payroll practitioners are required to include the dollar value of taxable benefits in the employee’s pay in the pay period in which the employee receives and enjoys the benefits. Waiting until the end of the year to calculate taxable benefits could result in Canada Customs and Revenue Agency and Revenue Quebec (for employers with Quebec payrolls) imposing penalties on the employer for failing to withhold and remit the appropriate amount of source deductions on time.
If you do not know the exact value of a benefit in a pay period, you may use an estimate. This is common practice for automobile taxable benefits.
Q: We often have employees under the age of 18 and over the age of 65 working for our company. Are there age limits that apply for deducting C/QPP, EI and income tax?
A: For the statutory deductions:
CPP: Employees under the age of 18 and over the age of 70 are exempt from CPP contributions. Employees who are collecting CPP retirement or disability benefits will also be exempt from CPP contributions, provided they show proof in the form of an award letter from Human Resources Development Canada, indicating they are currently receiving the CPP benefits. Employees who are not employed in pensionable employment are also exempt from CPP contributions.
QPP: Beginning January 1, 1998, employers have been required to continue to deduct QPP from amounts paid (or deemed paid) to employees in the year they turn 70 years old or begin to receive a C/QPP retirement pension. Employees under the age of 18 remain exempt from QPP deductions. Employees who are not employed in pensionable employment are also exempt from QPP contributions.
EI: There is no age limit for EI premiums. The former Unemployment Insurance Act was amended in 1990 to eliminate a previous restriction. As a result, all employees employed in insurable employment and receiving insurable earnings are subject to EI deductions, provided they have not reached the maximum annual contribution for the year.
Income tax: Employers must deduct income tax from all employees regardless of their age. However, the age tax credit on the TD1 form (and on the TP-1015.3-V for Quebec) may provide some tax relief for individuals who are 65 years of age or older. There may also be some relief for students who expect their annual income to be below the total of the amounts they are eligible to claim on the TD1 form.
Q: We are thinking of adding an afternoon shift and night shift to our normal day shift. What are the legal requirements governing payments and the methods of calculating shift premiums?
A: There is no legislation governing shift premiums in any jurisdiction. It can be paid either as a percentage of the regular hourly rate, a specific dollar amount per hour per shift, or even as a flat amount that covers a particular shift.
Q: Several of our sales representatives who have employer-leased vehicles are required, by our employer, to pay a portion of the monthly lease costs directly to the leasing company. Would this arrangement impact, in any way, the calculation of the standby charge that is required to be included in their income?
A: It appears that CCRA would still view the employer as having made an automobile available to these employees. Accordingly, the standby charge must still be calculated as per the requirements of subsection 6(2) of the Income Tax Act, whereby the standby charge is based on the employer’s cost of either purchasing or leasing the automobile in question. While paragraph 6(1)(e) of the Income Tax Act does allow an employer to reduce the standby charge by any amounts which the employee reimburses to the employer or to a person related to the employer for the use of the automobile, there is no provision which would allow the employer to reduce the standby charge by an amount which the employee pays directly to the leasing company unless this company was related to the employer. The employee(s) in question may, however, be able to claim a deduction when they file their personal tax return for their share of the lease cost which relates to business use of the vehicle.
The Payroll Hotline Service is available to subscribers to Carswell’s payroll products. For more information contact 1-800-387-5164 or (416) 609-3800.
Q: If an employee extends his or her business trip to include vacation time, what, if any, taxable benefit results?
A: As per Canada Customs and Revenue Agency’s (CCRA) Interpretation Bulletin IT-470 “Employee Fringe Benefits,” the taxable benefit is limited to additional “costs” the employer incurred due to the employee extending the trip. Therefore, if the employer does not incur any additional costs, there is no taxable benefit.
Q: We are paying a retiring allowance. We understand that under the Employment Insurance system, retiring allowances are not insurable. Do we still have to report the retiring allowance on the Record of Employment?
A: Yes. The entire amount of the retiring allowance is reported in BLOCK 17C “Other Monies.”
Q: Can we use lump sum tax rates when we pay out any type of lump sum payments, for example, banked overtime, bonus or retroactive pay increases?
A: No. You can only use lump sum tax rates for very specific payments as outlined by CCRA. They are classified as follows: retiring allowance, severance pay, death benefits, payouts from RRSP or RPP; redemption of an RRIF and payments from an income averaging fund.
Q: Do I have to pay summer students vacation pay?
A: Yes. All employees, regardless of their employment status, are entitled to vacation pay, as well as vacation time.
Q: We have just filed our T4s, T4As and RL-1s. We know we missed the filing deadline. What penalties will CCRA and Revenue Quebec impose on us for filing late?
A: Both CCRA and Revenue Quebec may impose penalties of $25 per day, to a maximum of $2,500, for information returns that come in past the filing deadline. Canada Customs Revenue Agency imposes a minimum penalty of $100.
Q: We make contributions on behalf of our employees to their group RRSP. Are these contributions reported in Box (20) of the T4?
A: No. The employer’s contributions to a group RRSP are taxable benefits; therefore, they are reported in Box (14) and in the “Other Information” area of the T4 (Code 40) and boxes ‘A’ and ‘L’ on the RL-1 for Quebec employees.
Q: Our company does annual pay out of vacation pay. No vacation time is taken at that time. Do we attach insurable hours to this type of payment when it is paid out?
A: No. When an employee is paid vacation and no leave is taken, no insurable hours are attached to the payment. When an employee is paid out vacation pay at termination, no hours are assigned to the payment either.
Q: I have just discovered that some of our employees overpaid Canada Pension Plan contributions in 1999. While I realize that the affected employees would have been able to recover any over-contributions on their personal income tax return for the year in question, I am not sure how the company should recover its refund of CPP contributions or is it too late to recover these amounts?
A: Employers who are entitled to refund of CPP contributions or EI premiums must complete form PD24, Statement of Overpayment and Application For Refund, and send it to the CCRA. The following summarizes the time frames within which an employer may recover its share of CPP contributions or EI premiums: According to section 38 of the Canada Pension Plan Act, employers must apply for a refund of CPP contributions within four years after the end of the year in which the overpayment occurred. According to section 96 of the Employment Insurance Act, employers must apply for a refund of EI premiums within three years after the end of the year in which the overpayment occurred. When an employer seeks to obtain a refund of QPP contributions, it must file a written request with the Minister of Revenue within four years after the end of the year in which the excess amount was paid. The request must contain all pertinent information.
Q: We have a suggestion plan at our company that rewards employees up to $500 in cash or in kind for suggestions that lead to cost savings for the company. What are the tax implications, if any, on the awards?
A: CCRA and Revenue Quebec consider these types of awards to be income to employees. As a result, cash-based awards are subject to C/QPP contributions, EI premiums and income tax deductions. Awards given in kind are considered a non-cash taxable benefit and are subject to C/QPP contributions and income tax deductions, but not EI premiums. Remember that taxable benefits are subject to source deductions in the pay period in which the employee receives and enjoys them.
Awards given in the form of cash are not subject to the GST/HST/QST. Awards given in kind are subject to the GST/HST/QST if they are not considered exempt or zero-rated supplies.
Q: We are thinking of setting up a long-term disability plan for our employees. If the employer pays the premiums for a group wage loss replacement plan, are the premiums a taxable benefit for the employees?
A: No, where an employer pays the premiums for a wage loss replacement plan that is a group plan, the premiums are not taxable benefits for the employees. However, should an individual later collect benefits from the wage loss replacement plan, the tax consequences on the benefits will depend on who paid the plan’s premiums. In general, only where the employees pay 100 per cent of the premiums will the benefits drawn from the plan be non-taxable. Benefits are taxable where the employer has paid all or a portion of the plan’s premiums.
Q: One of our employees has been subpoenaed as a witness and has to attend jury duty. Are we, as an employer, obligated to continue paying her wages while she is attending jury duty?
A: An employee called for jury duty or subpoenaed as a witness must be given time off work. Employers who fail to grant this leave are guilty of an offence and are liable for a fine or imprisonment or both.
Employers, except those in Newfoundland, are not required to pay an employee serving jury duty. However, in all provinces there is an obligation, once the jury duty ends, to reinstate the employee to the same or a comparable position, with the same wages, seniority and benefits he or she enjoyed before the jury duty leave.
Some employers (as part of their company policy) will continue to pay their employees during this absence, since the per diem rate awarded by most provincial courts barely covers travel and lunch expenses. This money, paid by the court, is considered a fee for services rendered.
Individuals whose employers will not pay them and who will, therefore, incur financial hardship, or who have other serious personal reasons, may appeal to the sheriff for an exemption from jury duty.
Q: At our company, we generally do not calculate employees’ taxable benefits until year-end, when we prepare T4s. Someone recently advised me that this is incorrect. Is this true?
A: Yes, payroll practitioners are required to include the dollar value of taxable benefits in the employee’s pay in the pay period in which the employee receives and enjoys the benefits. Waiting until the end of the year to calculate taxable benefits could result in Canada Customs and Revenue Agency and Revenue Quebec (for employers with Quebec payrolls) imposing penalties on the employer for failing to withhold and remit the appropriate amount of source deductions on time.
If you do not know the exact value of a benefit in a pay period, you may use an estimate. This is common practice for automobile taxable benefits.
Q: We often have employees under the age of 18 and over the age of 65 working for our company. Are there age limits that apply for deducting C/QPP, EI and income tax?
A: For the statutory deductions:
CPP: Employees under the age of 18 and over the age of 70 are exempt from CPP contributions. Employees who are collecting CPP retirement or disability benefits will also be exempt from CPP contributions, provided they show proof in the form of an award letter from Human Resources Development Canada, indicating they are currently receiving the CPP benefits. Employees who are not employed in pensionable employment are also exempt from CPP contributions.
QPP: Beginning January 1, 1998, employers have been required to continue to deduct QPP from amounts paid (or deemed paid) to employees in the year they turn 70 years old or begin to receive a C/QPP retirement pension. Employees under the age of 18 remain exempt from QPP deductions. Employees who are not employed in pensionable employment are also exempt from QPP contributions.
EI: There is no age limit for EI premiums. The former Unemployment Insurance Act was amended in 1990 to eliminate a previous restriction. As a result, all employees employed in insurable employment and receiving insurable earnings are subject to EI deductions, provided they have not reached the maximum annual contribution for the year.
Income tax: Employers must deduct income tax from all employees regardless of their age. However, the age tax credit on the TD1 form (and on the TP-1015.3-V for Quebec) may provide some tax relief for individuals who are 65 years of age or older. There may also be some relief for students who expect their annual income to be below the total of the amounts they are eligible to claim on the TD1 form.
Q: We are thinking of adding an afternoon shift and night shift to our normal day shift. What are the legal requirements governing payments and the methods of calculating shift premiums?
A: There is no legislation governing shift premiums in any jurisdiction. It can be paid either as a percentage of the regular hourly rate, a specific dollar amount per hour per shift, or even as a flat amount that covers a particular shift.
Q: Several of our sales representatives who have employer-leased vehicles are required, by our employer, to pay a portion of the monthly lease costs directly to the leasing company. Would this arrangement impact, in any way, the calculation of the standby charge that is required to be included in their income?
A: It appears that CCRA would still view the employer as having made an automobile available to these employees. Accordingly, the standby charge must still be calculated as per the requirements of subsection 6(2) of the Income Tax Act, whereby the standby charge is based on the employer’s cost of either purchasing or leasing the automobile in question. While paragraph 6(1)(e) of the Income Tax Act does allow an employer to reduce the standby charge by any amounts which the employee reimburses to the employer or to a person related to the employer for the use of the automobile, there is no provision which would allow the employer to reduce the standby charge by an amount which the employee pays directly to the leasing company unless this company was related to the employer. The employee(s) in question may, however, be able to claim a deduction when they file their personal tax return for their share of the lease cost which relates to business use of the vehicle.
The Payroll Hotline Service is available to subscribers to Carswell’s payroll products. For more information contact 1-800-387-5164 or (416) 609-3800.
