Chapter 4 Flashcards
CRA’s mandate is to:
collect revenues and administer tax laws for the federal government and for most provinces and territories
deliver various social and economic benefit incentive programs to Canadians
Canada Revenue Agency (CRA)
a federal government agency that manages the following business lines for the federal government:
tax services
benefit programs
CRA measures compliance in the following areas:
Filing
Registration
Remittance
Reporting
CRA’s program responsibilities related specifically to payroll include
Canada Pension Plan (CPP) (shared with ESDC and Service Canada)
Employment Insurance (EI) (shared with ESDC and Service Canada)
Income taxation
If an organization fails to deduct and remit the amounts withheld from employees for CPP, EI and income tax, it may be left in the position of …
paying both the employee’s and employer’s portion and will be subject to penalties
Payroll administrators need to have a clear understanding of how and when to make …
required deductions and remittances to avoid penalties and interest charges.
All monies deducted on behalf of CRA must be held “in trust” for the Receiver General`
Employment and Social Development Canada (ESDC)
Formerly HRSDC
A department of the Government of Canada committed to building a stronger and more competitive Canada by supporting Canadians in making choices that help them live productive and rewarding lives and to improve their quality of life.
ESDC
develops policies that make Canada a society in which Canadians can use their talents, skills and resources to thrive in the competitive market and contribute to their well-being
creates programs and support initiatives that help Canadians invest in themselves to move through life’s transitions—from families with children to seniors, from school to work, from one job to another, from unemployment to employment, from the workforce to retirement
creates better outcomes for Canadians through service excellence with Service Canada and other partners
ESDC supports human capital development, labour market development and is dedicated to establishing a culture of lifelong learning for Canadians. Some of their specific program responsibilities include:
Canada Pension Plan and Old Age Security Employment Insurance Employment Programs Youth Employment Strategies Canada Education Savings Program Canada Student Loans and Grants
Service Canada (SC)
Service Canada was created in 2005 to provide easy-to-access personalized service to Canadians
The agency integrates services from a number of federal departments to form a service delivery network
Service Canada serves as the government’s operational arm while ESDC operates as the policy-making body
3 man areas CRA is responsible for
CPP
EI
Income Tax
(Must be taken off in this order. Remember Alphabetically)
Some of Service Canada’s program responsibilities are:
the issuance of Social Insurance Numbers (SIN) and the protection and security of SIN information
the delivery of services to employers, including Record of Employment on the Web
the administration of Employment Insurance programs, including regular, parental, sickness, seasonal and compassionate care benefits
the administration of the Employment Insurance Premium Reduction program, including granting qualified employers a reduced Employment Insurance premium rate
the administration of Canada Pension Plan benefits, including retirement, disability, survivor, children’s and death benefits
the administration of benefits for seniors, including the Old Age Security Program and the Guaranteed Income Supplement
Canada Pension Plan
The purpose of the act is to provide protection to contributors and their families against the loss of income due to retirement, disability and death
The pension is designed to replace about 25 percent of the earnings on which a person’s contributions were based to a maximum monthly pension benefit of $1038.33 in 2014.
Contributions from payroll withholdings for employees:
Over the age of 18
Under the age of 70
Not receiving disability benefits under the Canada Pension Plan or Quebec Pension Plan
Employers match employee contributions 1:1
Canada Pension Plan contributioncalculation
Gross Earnings
Less: non-taxable allowances
Less: amounts paid on termination
Plus: taxable benefits
= Pensionable Earnings
Less: pay cycle exemption
= Contributory Earnings
X 4.95%
= Canada Pension Plan contribution
Canada Pension Plan Employer
Employer matches the contribution and submits both the employee and employer amount to CRA
Employment Insurance Premiums
Employment Insurance is the program with the greatest impact on payroll
This program provides temporary financial assistance for unemployed Canadians while they look for work or upgrade their skills
EI may also provide
sick benefits
maternity and/or paternity benefits
compassionate care benefits
Payroll is responsible for deducting and remitting EI premiums on
behalf of employees and the employer
They are also responsible for capturing information related to insurable earnings and hours for the Record of Employment
Contributions are based on Insurable Earnings calculated as:
Gross Earnings Less: Non-taxable allowances Non-cash benefits Earnings related to termination of employments = Insurable Earnings
Premium is Insurable Earnings x 1.88% to an annual maximum of $930.60
TD1: The Personal Tax Credits Return
There are 12 federal tax credit amounts that can be claimed on the TD1. For the purposes of this course, students are required to know and understand these credits.
Basic personal amount
Every Canadian resident can claim this amount. If no additional credits are being claimed then the basic amount will provide the minimum tax credit deduction.
The basic personal amount is set by the government on an annual basis.
Taxes withheld for each pay cycle is based on:
Net taxable income
Employee’s Personal Exemptions claimed on a TD1
Taxes can be calculated using:
Manual calculations
Payroll deduction tables
Payroll Deduction Online Calculator (PDOC)
CRA provided tables for payroll software
Gross taxable income is calculated as:
Gross earnings
Less non-taxable allowances
Plus taxable benefits
Net taxable income is:
Gross taxable income less:
Employee deductions for Registered Pension Plan
Employee deductions for RRSP contributions
Union dues withheld
Other CRA approved deductions
Income Tax Deducted – Tax Tables
Tables are prepared by the CRA on a minimum of once a year unless there are any changes. Since they are pre-calculated and figures are rounded – these tables are often not truly accurate.
Income Tax Deducted – PDOC
PDOC = Payroll Deduction Online Calculator
This method is used predominantly in practice for small businesses who do not have their own payroll software.
PDOC provides the information for all statutory deductions
