Annie Chong, manager of the payroll consulting group at Carswell, fields questions from readers
Who incurs taxable benefits when carpooling — the driver or the passengers?
Question: Some of our employees have set up car pooling to save on commuting costs for work. We provide free parking to our employees. It is a taxable benefit. Currently, for the employees who car pool, we assess the taxable benefit on the employees who own the car. Recently, some of the employees who do the driving have asked us to divide up the taxable benefit among all the people who take part in the car pooling, whether or not they are the drivers. Are we allowed to do this?
Answer: According to the Canada Revenue Agency (CRA), the employee who drives to work and uses the parking spot is the one who incurs the taxable benefit. It is up to the employee to decide whether to charge the others in the vehicle for the costs incurred for driving.
New hire lost CPT30
Question: We recently hired an employee who is receiving a retirement pension from the Canada Pension Plan (CPP). He is 68. He says he does not want to have CPP deductions taken from his pay and that he submitted a CPT30, Election to stop contributing to the Canada Pension Plan, or revocation of a prior election, to his previous employer earlier this year electing to stop contributions. He cannot find his copy of the form in order to make a photocopy for us. What should he/we do? The employee does not want to contact his former employer to ask for a copy of the form.
Answer: The CRA advises the employee should contact them and request a copy of the submitted form. Until the employee shows you the signed and dated form, you must deduct CPP contributions from his pay.
Once you have processed the form, you should reimburse the employee for the contributions deducted and revise your payroll records. You can reduce a future remittance to the CRA in the same calendar year to make up for the overcontribution. If you cannot reimburse the employee, show the CPP deducted and the pensionable earnings on the employee’s T4 at year end.
The employee may request a refund of the contribution when he files a personal income tax return. As an employer, you may apply for a refund of your contributions by completing form PD24, Application for a Refund of Overdeducted CPP Contributions or EI Premiums, and filing it with the CRA. You must do this within four years from the end of the year in which you made the overcontribution.
Reducing tax deductions for TFSA contributions
Question: One of our employees would like us to reduce her income tax withholdings so she can contribute a larger amount to her tax-free savings account (TFSA). She has shown us the paper work to prove she has a TFSA. Are we allowed to reduce her income tax source deductions?
Answer: No, the employee’s proof of a TFSA is not sufficient for reducing income tax source deductions.
The CRA allows employers to reduce the amount of an employee’s remuneration subject to income tax for the following reasons: employee contributions to registered pension plans and retirement compensation agreements, employee contributions to registered retirement savings plans (RRSPs) that the employer deducts and sends to the plan (as long as the employer has reasonable grounds to believe the employee can deduct the contribution in the year), union dues, amounts for living in a prescribed zone and an amount authorized by a CRA tax services office.
TFSAs are not treated the same as RRSPs for tax purposes. TFSA contributions are not tax deductible like RRSPs and withdrawals from the plans are tax free, unlike RRSPs.
Employees who wish to have their income tax source deductions reduced for reasons other than those mentioned above may apply to the CRA.
If the CRA approves the request, it will send the employee a letter authorizing the reduction. The employee must show the letter to the employer before the employer can reduce the employee’s income tax deductions.
Annie Chong is manager of the payroll consulting group at Carswell, a Thomson Reuters business, which publishes the Canadian Payroll Manual and operates the Carswell Payroll Hotline. She can be reached at [email protected] or (416) 298-5085.
Question: Some of our employees have set up car pooling to save on commuting costs for work. We provide free parking to our employees. It is a taxable benefit. Currently, for the employees who car pool, we assess the taxable benefit on the employees who own the car. Recently, some of the employees who do the driving have asked us to divide up the taxable benefit among all the people who take part in the car pooling, whether or not they are the drivers. Are we allowed to do this?
Answer: According to the Canada Revenue Agency (CRA), the employee who drives to work and uses the parking spot is the one who incurs the taxable benefit. It is up to the employee to decide whether to charge the others in the vehicle for the costs incurred for driving.
New hire lost CPT30
Question: We recently hired an employee who is receiving a retirement pension from the Canada Pension Plan (CPP). He is 68. He says he does not want to have CPP deductions taken from his pay and that he submitted a CPT30, Election to stop contributing to the Canada Pension Plan, or revocation of a prior election, to his previous employer earlier this year electing to stop contributions. He cannot find his copy of the form in order to make a photocopy for us. What should he/we do? The employee does not want to contact his former employer to ask for a copy of the form.
Answer: The CRA advises the employee should contact them and request a copy of the submitted form. Until the employee shows you the signed and dated form, you must deduct CPP contributions from his pay.
Once you have processed the form, you should reimburse the employee for the contributions deducted and revise your payroll records. You can reduce a future remittance to the CRA in the same calendar year to make up for the overcontribution. If you cannot reimburse the employee, show the CPP deducted and the pensionable earnings on the employee’s T4 at year end.
The employee may request a refund of the contribution when he files a personal income tax return. As an employer, you may apply for a refund of your contributions by completing form PD24, Application for a Refund of Overdeducted CPP Contributions or EI Premiums, and filing it with the CRA. You must do this within four years from the end of the year in which you made the overcontribution.
Reducing tax deductions for TFSA contributions
Question: One of our employees would like us to reduce her income tax withholdings so she can contribute a larger amount to her tax-free savings account (TFSA). She has shown us the paper work to prove she has a TFSA. Are we allowed to reduce her income tax source deductions?
Answer: No, the employee’s proof of a TFSA is not sufficient for reducing income tax source deductions.
The CRA allows employers to reduce the amount of an employee’s remuneration subject to income tax for the following reasons: employee contributions to registered pension plans and retirement compensation agreements, employee contributions to registered retirement savings plans (RRSPs) that the employer deducts and sends to the plan (as long as the employer has reasonable grounds to believe the employee can deduct the contribution in the year), union dues, amounts for living in a prescribed zone and an amount authorized by a CRA tax services office.
TFSAs are not treated the same as RRSPs for tax purposes. TFSA contributions are not tax deductible like RRSPs and withdrawals from the plans are tax free, unlike RRSPs.
Employees who wish to have their income tax source deductions reduced for reasons other than those mentioned above may apply to the CRA.
If the CRA approves the request, it will send the employee a letter authorizing the reduction. The employee must show the letter to the employer before the employer can reduce the employee’s income tax deductions.
Annie Chong is manager of the payroll consulting group at Carswell, a Thomson Reuters business, which publishes the Canadian Payroll Manual and operates the Carswell Payroll Hotline. She can be reached at [email protected] or (416) 298-5085.
