Category Archives for "Payroll"

Are you Planning to Give Gifts to Your Employees this Holiday Season? Do You Know What is Taxable?

By Randall Orser | Business Income Taxes , Employees , holiday season , Payroll , Small Business

At this time of year many employers give a Christmas or annual bonus – did you know that this is a taxable benefit if paid in cash or a cash equivalent such as gift cards?

You might think about giving your employees gifts instead of cash bonuses so that both of you will benefit on your Canadian income tax.  Employers can use the total cost of the gift as a tax deduction and employees do not need to declare the cost of the gift as part of their taxable income.

Under CRA rules all gifts to employees are considered to be taxable income except for the following exemptions:

1.   It is non-cash and less than $500 in fair market value per year and only given for the following reasons:

  • A Religious or other special event
  • Birth of a child
  • Wedding
  • Birthday

2.   It is a non-cash long standing service award valued at less than $500, this can be given once every five years.

3.   An Award for an employment related accomplishment.  These are allowed when:

  • It has clearly defined criteria
  • A nomination and evaluation process
  • Limited number of recipients

4.   Employer provided parties or social events where the cost is $100 per person or less.

5.   Meals or other hospitality services at work-related functions such as meetings or training sessions.

6.   Valueless items such as tea/coffee, snacks, t-shirts, hats etc.

There is no limit to the number of gifts an employee can receive in a given year as long as the total value is not more than $500.  Small gifts such as mugs or chocolates etc. are not included in the $500 limit.

If you want to give your employees gifts that are tax deductible for your company, you need to be careful what you give.  Items that can easily be converted into cash such as gift cards or stocks will be considered to be taxable employee benefits as will some performance related awards and bonuses.  Included under this rule are:

  • Gift Cards
  • Rewards that include employer-provided meals or accommodations such as trips
  • Cash or non-cash awards from manufacturers that are given to employers then passed onto employees
  • Points for travel, accommodations or other rewards
  • Gifts given by manufacturers to employees of dealerships

If you want to give Cash Bonuses or near-cash bonuses such as gift cards to your employees, it must be through payroll and must have taxes deducted.

For full list of taxable or non-taxable benefits and allowances visit the link below:
CRA's Benefits and allowances chart


Are Your Employee CPP/EI Deductions Correct?

By Randall Orser | Employees , Payroll , Personal Income Tax

As we’re coming to the end of the year, it’s a good time to check if you’re correctly calculating and deducting for Canada Pension Plan and Employment Insurance. You may think the software, or even Canada Revenue Agency’s Payroll Deductions Online Calculator (PDOC) are doing the correct job, however, that’s not always the case. In most cases, there’s not much of a different, but in some cases, it can be substantial.

Pensionable and insurable earnings review (PIER)

Each year, CRA checks the calculations you made on the T4 slips that you filed with your T4 Summary. CRA does this to make sure the pensionable and insurable earnings you reported agree with the deductions you withheld and remitted.This should be something you’re doing before you do your final remittance for the year in January of the following year. If you have someone preparing your T4s using software, they can do this for you before you file your December remittance in January. The software checks the CPP & EI and then adjusts the amounts and puts them to TAX. The reason to do this before the final remittance before the year is so you don’t end up with a credit balance on your payroll deductions account (this tends to trigger CRA into asking questions).

If you’re doing the T4s yourself then there is a way of checking the CPP & EI amounts.

Checking the amount of CPP you deducted

Step 1 – Prorate the maximum CPP contribution for the year by following these steps:

Stage 1: Deduct the year's basic exemption ($3,500 for 2016) from the year's maximum pensionable earnings ($54,900 for 2016).

Stage 2: Multiply the result of Stage 1 by the number of pensionable months.

Stage 3: Divide the result of Stage 2 by 12 (months).

Stage 4: Multiply the result of Stage 3 by the CPP rate that applies for the year (4.95% for 2016).

To find out about the previous and current exemptions, maximums, and rates, see the CPP contribution rates, maximums and exemptions chart.

Step 2 – Calculate the CPP contribution per pay period using the Manual calculation for CPP, and withhold the amount calculated until one of the following happens:

* the maximum prorated contribution for the year is reached; or

* the last pay period for which deductions are required is completed.

Step 3 – The correct amount of CPP contributions will be the result of Step 1 or Step 2, whichever is the lowest.

Example

Brent turns 18 on June 15, 2016. He receives $1,000 every two weeks ($26,000 a year). This amount is less than the maximum pensionable earnings ($54,900 for 2016) that require CPP contributions.

Prorated maximum contribution for 2016:

($54,900 – 3,500) × 6/12 × 4.95% = $1,272.15
(6/12 represents the number of pensionable months divided by 12).

Brent’s maximum CPP contribution for 2016 is $1,272.15.

Pay period calculation:

January to June 2016

No CPP contributions

July to December 2016

* Pay period: biweekly* Earnings: $1,000

* Brent’s first pay in July is July 3, for the period June 20 to July 3.

Using the calculation in the basic exemption chart, Brent’s CPP contributions for each pay are calculated as follows:

Step 1: Brent’s pensionable earnings = $1,000.00

Step 2: Basic exemption for the period from the basic exemption chart = $134.61

Step 3: Pensionable earnings minus basic exemption = $865.39

Step 4: CPP contribution rate for 2016 = 4.95%

Step 5: CPP contribution per pay period = $42.84

You will have to start deducting $42.84 from each of Brent’s pays, beginning with the one dated July 3 (the month after Brent turns 18). His actual contributions for the year will be $42.84 × 13 (biweekly pay periods) = $556.92.

This does not exceed the prorated maximum contribution of $1,272.15; therefore, the correct amount of CPP has been deducted.

When you fill out Brent’s T4 slip at the end of the year, report $26,000 in box 14, $556.92 in box 16, and $13,000 in box 26. Fill in the rest of his T4 slip in the usual way.

Checking the Amount of EI You Deducted

Checking EI is much easier than CPP as there is no yearly exemptions, though there is a yearly maximum income amount (2017 = $51,300 and $836.19 in total EI). Basically, you take the employee’s income for the year times it by the current EI rate (1.63% to maximum of $836.19) and that’s what should’ve been deducted from the employee.

Example

Bob earned $47,000 in the year, so his total EI contributions should be $766.10. If that matches what you have in your records then you’re good to go, if it’s under you’ll have to take more off of Bob’s next cheque. If it’s more, then just adjust his EI to match that amount and add the difference to his TAX amount. If it’s just a couple of pennies, don’t worry about it.

The annual maximum insurable earnings ($51,300 for 2017) apply to each job the employee holds with different employers (different business numbers). If an employee leaves one employer during the year to start work with another employer, the new employer also has to deduct EI premiums without taking into account what the previous employer paid. This is the case even if the employee has paid the maximum premium amount during the previous employment.

That Great Employee Benefit is Probably Taxable 

By Randall Orser | Business Income Taxes , Payroll , Small Business

You’ve decided to reward your employees with a benefits plan, maybe a company car, gift cards, and such. Now, before you go and give your employee something, you need to find out if that benefit is considered income to the employee, and, therefore, taxable. Sadly, any kind of benefit you give an employee is considered a taxable benefit, and the employee must be taxed on it, some even are taxable for Canada Pension Plan and Employment Insurance. We’ll talk about what is a benefit and how is it taxable.

Your employee has received a benefit if you pay for or give something that is personal in nature: directly to your employee; or to a person who does not deal at arm’s length with the employee (such as the employee’s spouse, child, or sibling).

A benefit is a good or service you give, or arrange for a third party to give, to your employee such as free use of property that you own. A benefit includes an allowance or a reimbursement of an employee’s personal expense.

An allowance is a limited amount decided in advance that you pay to your employee on top of salary or wages, to help the employee pay for certain anticipated expenses without having him or her support the expenses. An allowance can be calculated based on distance or time or on some other basis such as motor vehicle allowance using the distance driven or a meal allowance using the type and number of meals per day.

A reimbursement is an amount you pay to your employee to repay actual expenses he or she incurred while carrying out the duties of employment. The employee must keep proper records to support the expenses and give them to the employer.

Determine if the benefit is taxable

Your first step is to determine whether the benefit you provide to your employee is taxable and should be included in his or her employment income when the benefit is received or enjoyed. Whether the benefit is taxable depends on its type and the reason an employee or officer receives it. To determine if the benefit is taxable, see Chapters 2 to 4 of Guide T4130, Employers’ Guide Taxable Benefits and Allowances.

The benefit may be paid in cash (such as a meal allowance or reimbursement of personal cellular phone charges), or provided in a manner other than cash, such as a parking space or a gift certificate. The way you pay or provide the benefit to your employee will affect the payroll deductions you should withhold.

Types of benefits and allowances

To find out if benefits and allowances are taxable and how they are declared on T4 or T4A slips, see the Benefits and allowances alphabetical index. There are just too many to go through in this blog post.

Calculate the value of the benefit

Once you determine that the benefit is taxable, you need to calculate the value of the specific benefit. The value of a benefit is generally its fair market value (FMV). This is the price that can be obtained in an open market between two individuals dealing at arm's length. The cost to you for the property, good, or service may be used if it reflects the FMV of the item or service. You must be able to support the value if you are asked.

Goods and services tax/harmonized sales tax (GST/HST) and provincial sales tax (PST)

When you calculate the value of the taxable benefit you provide to an employee, you may have to include:

  • the GST/HST payable by you; and
  • the PST that would have been payable if you were not exempt from paying the tax because of the type of employer you are or the nature of the use of the property or service.

Use the “Benefits chart,” here to find out if you should include GST/HST in the value of the benefit. Some benefits have further information about GST/HST in the topic specific section.

The amount of the GST/HST you include in the value of the taxable benefits is calculated on the gross amount of the benefits, before any other taxes and before you subtract any amounts the employee reimbursed you for those benefits.

You do not have to include the GST/HST for:

  • cash remuneration (such as salary, wages, and allowances); or
  • a taxable benefit that is an exempt supply or a zero‑rated supply as defined in the Excise Tax Act.

Policy for non-cash gifts and awards

You may give an employee an unlimited number of non-cash gifts and awards with a combined total value of $500 or less annually. If the fair market value (FMV) of the gifts and awards you give your employee is greater than $500, the amount over $500 must be included in the employee's income. For example, if you give gifts and awards with a total value of $650, there is a taxable benefit of $150 ($650-$500).

you can, once every five years, give your employee a non-cash long-service or anniversary award valued at $500 or less, tax free. The award must be for a minimum of five years' service, and it should be at least five years since you gave the employee the last long-service or anniversary award. Any amount over the $500 is a taxable benefit.

If it has not been at least five years since the employee's last long-service or anniversary award, then the award is a taxable benefit. For example, if the 15-year award was given at 17 years of service, and then the next award is given at 20 years of service, the 20-year award will be a taxable benefit, for five years will not have passed since the previous award.

The $500 exemption for long-service awards does not affect the $500 exemption for other gifts and awards in the year you give them. For example, you can give an employee a non-cash long-service award worth $500 in the same year you give him or her other non-cash gifts and awards worth $500. In this case, there is no taxable benefit for the employee. If the value of the long-service award is less than $500, you cannot add the shortfall to the annual $500 exemption for non-cash gifts and awards.

Items of small or trivial value do not have to be included when calculating the total value of gifts and awards given in the year for the exemption. Examples of items for small or trivial value include: coffee or tea; T-shirts with employer's logos; mugs; plaques or trophies.

Basically, anything you give an employee becomes a taxable benefit. Ensure you chat with your bookkeeping/accountant before deciding on any employee benefits, as more than likely, they are taxable.