You’ve taken the plunge and brought on your first employee. Congratulations! Now, the fun starts. There is certain information you must get from every new employee before they get their first paycheque. It’s vital to have this information so you can ensure they are authorized to work in Canada, and you take the correct deductions. The two vital pieces of information to obtain are the Social Insurance Number (SIN) and a TD1Personal Tax Credits Return.
Social Insurance Number (SIN)
Every person who is working in Canada must have a Social Insurance Number (SIN) card, and must present this to an employer upon request. Ensure that the name on the card matches the name they have given you (don’t laugh as this has happened to a client), and take a photocopy of the card (front and back) and keep it in their employee file. Also, ensure you make a correct note of the SIN in your accounting files, or payroll service provider has the correct number. This is important for future when the employee goes on employment insurance, retires, or for his RRSP contributions each year.
What if the employee refuses to give you his or her SIN or to apply for one? You should be able to show that you made a reasonable effort to get it. What is a reasonable effort? After asking your employee for his SIN many times, you decide to contact him in writing to request his SIN. Record the dates you asked him, and keep a copy of the written request and any other related correspondence. If after all this the employee still refuses to give you a SIN, then I’d terminate them. You must also file an ROE and a T4 for this person, and indicate, when you file either form, that the employee refused to give his SIN. An employee who refuses to give his or her SIN may also be subject to a penalty of $100 for each failure.
If the employee doesn’t have a SIN, then you have to tell the employee how to get a one. Refer them to their Service Canada Office within three days of the day they start work and ask them to provide you with proof of application as well as to show you their SIN card once they receive it. Again, photocopy the application and put it in their file along with a copy of the SIN card once it arrives.
Even if you cannot get your employee’s SIN, you are still responsible for calculating deductions and filing an information return by the due dates. If you fail to deduct or file your information return, Canada Revenue Agency (CRA) may assess penalties.
TD1 Personal Tax Credits Return
TD1, Personal Tax Credits Return, is a form used to determine the amount of tax to be deducted from an individual’s employment income or other income, such as pension income. There are federal and provincial/territorial TD1 forms. Individuals complete the forms and give them to their employer or payer who should keep the completed forms with their records. Do not send CRA a copy.
Who should complete this form? Individuals who have a new employer or payer have to complete the federal TD1 and, if more than the basic personal amount is claimed, the provincial or territorial TD1. Individuals do not have to complete a new TD1 every year unless there is a change in their entitlements to their federal, provincial or territorial personal tax credit amounts. If a change occurs, they must complete a new form no later than seven days after the change.
If your employee has more than one employer or payer at the same time and has already claimed personal tax credit amounts on another TD1 form, he or she cannot claim them again. If his or her total income from all sources will be more than the personal tax credits claimed on another TD1 form, he or she must check the box on the back of the TD1 form, enter “0″ on line 13 ‘Total Claim Amount’ on the front page and should not complete lines 2 to 12.
Ensure that the employee fills out the form completely and accurately, and signs the form. The employee can use the TD1 to request additional tax be taken off, especially if they have other income.
Once you have these two important pieces of information, you’re good to go and can now start paying your employee. Remember, if there are ever any changes to ensure the employee tells you, that you get the required copies, and get everything in writing.
What are the Advantages of Incorporating?
What Records Do You have to Keep and Who Has to Keep them?
How should I organize my receipts?
What does an authorized representative do?
Tidbits – What do I do with a Bad Debt?
Don’t File Late, Watch That Date!
If I give a gift to an employee, is that taxable?
Can I Get Penalties/Interest Waived?