Chapter 2: Employer Withholdings and Employee Deductions (ITA 153) Flashcards
What does ITA 153 require employers to do regarding income tax withholdings?
ITA 153 requires employers to withhold taxes from salaries, wages, and other remuneration and remit these to the federal government within a certain period of time.
How is the amount withheld by an employer determined?
The amount withheld by an employer is specified in Part 1 of the ITRs and depends on dollar amounts and payment frequency, using CRA’s payroll deduction tables.
What form do employees fill out to reduce the base on which source deductions are calculated?
Employees fill out form TD1, “Personal Tax Credits Return,” annually for both federal and provincial/territorial purposes to reduce the base for source deductions.
How can taxpayers adjust their income tax withholdings under ITA 153?
Taxpayers can either request an increase in withholdings or a reduction using form TD1.
This is useful if they reside in a province with a different tax rate or have large support payments not subject to withholding.
Why might an individual request additional withholdings each pay period?
An individual might request additional withholdings to avoid a large tax liability at the end of the year or to avoid the need to pay tax instalments.
What happens if a taxpayer has significant recurring deductions from income, like RRSP contributions or spousal support payments?
These deductions are not listed on TD1 as credits, but taxpayers can request a reduction in withholdings by providing proof of these deductions, which would lower their taxable income.
How can a taxpayer request a reduction in income tax withholdings from their employer?
A taxpayer can use form T1213, “Request to Reduce Tax Deductions at Source,” to request a reduction in income tax withholdings, and the CRA may authorize the employer to reduce the withheld amount.
What is ITA 153(1.1) regarding reduced income tax withholdings?
ITA 153(1.1) states that the minister is required to allow reduced withholdings only if withholding the standard amount would cause “undue hardship.”
What other types of payments, besides wages and salaries, require withholdings under ITA 153?
ITA 153 requires withholdings on payments such as:
Retiring allowances
Death benefits
Payments from Registered Retirement Savings Plans (RRSPs)
Payments from Registered Education Savings Plans (RESPs)
What does ITA 153(1) state about non-residents providing services in Canada?
ITA 153(1) requires non-residents offering their services in Canada to be subject to the same income tax withholdings as Canadian resident employees.
Non-residents providing non-employment-related services in Canada are also subject to a 15% withholding on gross fees paid.
How can non-residents recover overpayment of Canadian income tax?
Non-residents can file a Canadian income tax return to recover any overpayment or apply for a treaty-based waiver if their home country has a tax treaty with Canada that exempts them from withholdings.
What does ITA 153(1) require regarding information returns?
ITA 153(1) requires any person making a payment described in ITA 153(1) to file an information return to the CRA, typically in the form of a T4, T4A, or other information slips.
What are the differences between a T4 slip and a T4A slip?
A T4 slip details employment-related withholdings, while a T4A slip applies to pension, retirement, annuity, and other income.
What does ITA 153(1)(g) specify about payments for services?
ITA 153(1)(g) specifies that fees, commissions, or other amounts paid for services (such as legal, accounting, plumbing, etc.) require the business owner to file an information return with the CRA, even if no withholdings are required.
What are the consequences of failing to file an information return as required by ITA 153(1)?
Failure to file an information return as required can result in penalties.
