A checklist to help payroll practitioners ensure the i’s are dotted and the t’s are crossed
With the end of 2006 fast approaching, it’s time again for payroll practitioners to set aside their day-to-day work and focus on T4 year-end reporting.
The following checklist is designed to help ensure payroll has dotted all the i’s and crossed all the t’s before submitting T4s. The deadline for filing T4 information slips and summary reports is Feb. 28, 2007.
Before submitting T4s, ensure the following items have been checked:
•No employee has contributed more than the 2006 Canada Pension Plan (CPP) contribution maximum of $1,910.70.
•No employee has contributed more than $729.30 in employment insurance (EI) premiums, the 2006 EI maximum for employees in all parts of Canada (except Quebec, where the maximum EI premium is $596.70).
•Manual cheques have been included and cancelled cheques have been excluded from all year-to-date earnings totals and deductions totals that are reported on the T4 slips.
•All taxable benefits have been included as employment income in box 14 and reported using the appropriate codes in the “other information” area of the T4. The latter is especially important for individuals below the yearly pensionable (CPP) earnings. (Remember that non-cash taxable benefits are not insurable, with the exception of board and lodging benefits provided in the same pay period that an employee receives cash earnings and an employer’s contribution to an employee’s registered retirement savings plan.)
•Box 24 on the T4 (EI insurable earnings) is left blank if there are no insurable earnings, if the earnings are the same as the amount reported in box 14 (employment income), or if the insurable earnings are over the maximum of $39,000 for 2006.
•Box 26 (CPP/QPP pensionable earnings) on the T4 slip is completed only if the amount is different from the amount reported in box 14.
•Do not adjust the CPP contribution or EI premium amounts reported on the T4 if employee contributions have been over-deducted. The Canada Revenue Agency will credit the employees with the over-contribution when they file their tax return. (To apply for a refund for a CPP and/or EI overpayment, complete form PD24, “Application for a Refund of Overdeducted CPP Contributions or EI Premiums.” Send it in with the T4s if filing on paper. If filing electronically, send the form in separately by mail.)
•Employers that contribute to registered pension plans (RPPs) or deferred profit-sharing plans (DPSPs) for employees have reported a pension adjustment in box 52.
•Enter only the dollar amount in box 52 (no cents). Leave the box blank if the pension adjustment is zero or a negative amount, if the employee died in the year, or if the employee is all paid up. (The employee no longer accrues new pension credits in the year, although he remains a member of the plan).
•Verify that maximum limits for 2006 are $19,000 for a money purchase plan and $9,500 for a deferred profit-sharing plan.
•Prepare a separate T4 for each province or territory in which an employee has worked. If an employee is receiving more than one T4 slip, ensure the pension adjustment (if applicable) is reported proportionately on each T4. If this is not possible, report the pension adjustment on one slip.
•Negative dollar amounts are not reported.
•Amounts are reported only in Canadian currency.
•Top-up amounts paid to employees receiving workers’ compensation benefits are reported on the T4.
•The business number (BN) used to send in employee deductions is on all forms except copies of information slips that are provided to employees.
•A separate set of information slips and related summaries has been prepared for each payroll deductions account.
•The totals reported on the summary forms match the totals on the information slips.
•All relevant information has been entered (the codes and amounts that relate to employment commissions, taxable allowances or benefits, and deductible amounts that apply) in the “other information” area at the bottom of the T4.
•Employees have a valid social insurance number.
•Do not change the headings of any of the boxes.
•Do not print or type the dollar sign ($) on the forms.
•Prepare the slips clearly and in alphabetical order.
•Do not use hyphens or dashes between numbers or names.
Forms and guides
What’s new for 2006
The Canada Revenue Agency (CRA) has created five new codes for the “other information” area of the T4. They are:
•81 placement or employment agency workers gross earnings;
•82 drivers of taxis or other passenger-carrying vehicles gross earnings;
•83 barbers or hairdressers gross earnings;
•84 public transit pass; and
•85 employee-paid premiums for private health services plans.
The use of codes 81 to 84 is optional in 2006 reporting. It will become mandatory with 2007 reporting. The use of code 85 is optional.
Code 84, for public transit pass, is for employers to report amounts employees pay (for example, through payroll deductions) to buy monthly transit passes or amounts employers pay for transit passes they provide to employees as a taxable benefit. In the May 2, 2006, federal budget, the government proposed to allow individuals to claim a non-refundable tax credit for the cost of monthly (or longer) transit passes, beginning July 1, 2006. For 2006, employers that choose to use code 84 must enter the total amounts that relate to transit after June 30, 2006.
To be eligible, the passes must allow for unlimited use for the time period for which they are valid and would have to be for transit in Canada. It would be up to the individuals to claim the credit on their personal income tax return. Individuals must keep their receipts or passes to claim the credit. The 2006 version of the Employers’ Guide: Filing the T4 Slip and Summary (RC4120) states that if the employer does not complete code 84, the employee will have to keep the receipts or passes in case the CRA asks to see them.
For code 81, placement or employment agency workers gross earnings, the 2006 T4 guide provides detail on how to complete a T4 depending on whether the agency hires the employees, the agency pays the workers, or the agency’s client pays the workers.
Code 85 is used to report employee premiums to private health services plans. Employees can claim the premiums as a medical expense. The use of the code is optional. But if employers do not use the code, the CRA may ask for supporting documents.
Beginning in the 2006 tax year, a fisher’s income must be reported on a T4, not a T4F.
The 2006 T4 guide also includes information on how to report salary or wages that an employee repays to an employer or salary or wages paid by mistake.
Annie Chong is manager of the Payroll Consulting Group at Thomson Carswell, which publishes the Canadian Payroll Manual and operates the Carswell Payroll Hotline. She may be reached at (416) 298-5085 or at [email protected].
The following checklist is designed to help ensure payroll has dotted all the i’s and crossed all the t’s before submitting T4s. The deadline for filing T4 information slips and summary reports is Feb. 28, 2007.
Before submitting T4s, ensure the following items have been checked:
•No employee has contributed more than the 2006 Canada Pension Plan (CPP) contribution maximum of $1,910.70.
•No employee has contributed more than $729.30 in employment insurance (EI) premiums, the 2006 EI maximum for employees in all parts of Canada (except Quebec, where the maximum EI premium is $596.70).
•Manual cheques have been included and cancelled cheques have been excluded from all year-to-date earnings totals and deductions totals that are reported on the T4 slips.
•All taxable benefits have been included as employment income in box 14 and reported using the appropriate codes in the “other information” area of the T4. The latter is especially important for individuals below the yearly pensionable (CPP) earnings. (Remember that non-cash taxable benefits are not insurable, with the exception of board and lodging benefits provided in the same pay period that an employee receives cash earnings and an employer’s contribution to an employee’s registered retirement savings plan.)
•Box 24 on the T4 (EI insurable earnings) is left blank if there are no insurable earnings, if the earnings are the same as the amount reported in box 14 (employment income), or if the insurable earnings are over the maximum of $39,000 for 2006.
•Box 26 (CPP/QPP pensionable earnings) on the T4 slip is completed only if the amount is different from the amount reported in box 14.
•Do not adjust the CPP contribution or EI premium amounts reported on the T4 if employee contributions have been over-deducted. The Canada Revenue Agency will credit the employees with the over-contribution when they file their tax return. (To apply for a refund for a CPP and/or EI overpayment, complete form PD24, “Application for a Refund of Overdeducted CPP Contributions or EI Premiums.” Send it in with the T4s if filing on paper. If filing electronically, send the form in separately by mail.)
•Employers that contribute to registered pension plans (RPPs) or deferred profit-sharing plans (DPSPs) for employees have reported a pension adjustment in box 52.
•Enter only the dollar amount in box 52 (no cents). Leave the box blank if the pension adjustment is zero or a negative amount, if the employee died in the year, or if the employee is all paid up. (The employee no longer accrues new pension credits in the year, although he remains a member of the plan).
•Verify that maximum limits for 2006 are $19,000 for a money purchase plan and $9,500 for a deferred profit-sharing plan.
•Prepare a separate T4 for each province or territory in which an employee has worked. If an employee is receiving more than one T4 slip, ensure the pension adjustment (if applicable) is reported proportionately on each T4. If this is not possible, report the pension adjustment on one slip.
•Negative dollar amounts are not reported.
•Amounts are reported only in Canadian currency.
•Top-up amounts paid to employees receiving workers’ compensation benefits are reported on the T4.
•The business number (BN) used to send in employee deductions is on all forms except copies of information slips that are provided to employees.
•A separate set of information slips and related summaries has been prepared for each payroll deductions account.
•The totals reported on the summary forms match the totals on the information slips.
•All relevant information has been entered (the codes and amounts that relate to employment commissions, taxable allowances or benefits, and deductible amounts that apply) in the “other information” area at the bottom of the T4.
•Employees have a valid social insurance number.
•Do not change the headings of any of the boxes.
•Do not print or type the dollar sign ($) on the forms.
•Prepare the slips clearly and in alphabetical order.
•Do not use hyphens or dashes between numbers or names.
Forms and guides
What’s new for 2006
The Canada Revenue Agency (CRA) has created five new codes for the “other information” area of the T4. They are:
•81 placement or employment agency workers gross earnings;
•82 drivers of taxis or other passenger-carrying vehicles gross earnings;
•83 barbers or hairdressers gross earnings;
•84 public transit pass; and
•85 employee-paid premiums for private health services plans.
The use of codes 81 to 84 is optional in 2006 reporting. It will become mandatory with 2007 reporting. The use of code 85 is optional.
Code 84, for public transit pass, is for employers to report amounts employees pay (for example, through payroll deductions) to buy monthly transit passes or amounts employers pay for transit passes they provide to employees as a taxable benefit. In the May 2, 2006, federal budget, the government proposed to allow individuals to claim a non-refundable tax credit for the cost of monthly (or longer) transit passes, beginning July 1, 2006. For 2006, employers that choose to use code 84 must enter the total amounts that relate to transit after June 30, 2006.
To be eligible, the passes must allow for unlimited use for the time period for which they are valid and would have to be for transit in Canada. It would be up to the individuals to claim the credit on their personal income tax return. Individuals must keep their receipts or passes to claim the credit. The 2006 version of the Employers’ Guide: Filing the T4 Slip and Summary (RC4120) states that if the employer does not complete code 84, the employee will have to keep the receipts or passes in case the CRA asks to see them.
For code 81, placement or employment agency workers gross earnings, the 2006 T4 guide provides detail on how to complete a T4 depending on whether the agency hires the employees, the agency pays the workers, or the agency’s client pays the workers.
Code 85 is used to report employee premiums to private health services plans. Employees can claim the premiums as a medical expense. The use of the code is optional. But if employers do not use the code, the CRA may ask for supporting documents.
Beginning in the 2006 tax year, a fisher’s income must be reported on a T4, not a T4F.
The 2006 T4 guide also includes information on how to report salary or wages that an employee repays to an employer or salary or wages paid by mistake.
Annie Chong is manager of the Payroll Consulting Group at Thomson Carswell, which publishes the Canadian Payroll Manual and operates the Carswell Payroll Hotline. She may be reached at (416) 298-5085 or at [email protected].
