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Chapter 3
Payroll Fundamentals 2
| Term | Definition |
|---|---|
| Source deductions held from employees (3) | CPP contributions, EI premiums, Income tax |
| Source deductions held from employers (2) | CPP contributions and EI premiums |
| Adjustment done after last payroll, but before final remittance due | can be made by the due date, no interest or penalties as remittance would be made on time. |
| Adjustment done after final remittance | any amounts due to the CRA may attract interest and penalty costs. |
| Adjustments made to payroll records | must adjust remittance spreadsheet, must be the same totals for the T4 or T4A slips. |
| Credit balance on PD7A doesn't total T4 or T4A slips | balance on the account will be carried forward to the next year. |
| PD7A balance includes (3) | 1. all amounts plus interest owing from pervious year 2. remittances for previous tax year, related to tax slips to be filed by END OF FEB. 3. remittances for current year |
| Employees overall payroll (8) | 1. Gross taxable income 2. CPP earnings 3. EI earnings 4. Income tax 5. CPP contributions 6. EI premiums 7. Provincial health care levies 8. WC assessable earnings/yr. end adjustments |
| Taxable Benefits | included in employee income |
| Taxable Benefit Adjustments | must be done before the last payroll is processed for tax year. |
| Pension Adjustments (PA)/Pension Credits | the measure of the benefit that an individual earns in a year for a pension plan (RPP) or deferred profit sharing plan (DPSP). |
| PA benefits | - also known as "the member's total pension credits" (CRA) - larger the PA, the smaller the RRSP contribution limit amount |
| Benefit Entitlement | the portion of a member's pension that is considered to have accumulated during the year (Defined benefit pension plans only) |
| Pensionable earnings | types of earnings, as defined in the plan's text, used to calculate pension benefits earned. |
| Reallocated forfeitures | amount a member ceased to have rights to under a deferred profit sharing plan (DPSP) or defined contribution plan (DC). Forfeited upon termination of employment. |
| Pension credit | reflects the value of the benefit a member earns under a deferred profit sharing plan, a contribution plan, or defined benefit provision of a RPP plan. |
| PA Formula | used to calculate a pension credit for defined benefit plan. = (9 x benefit entitlement) - $600.00 |
| Factor of 9 | limit on contributions is 18% of earned income. Max rate is 2% of compensation (9 x 2 = 18) |
| $600.00 offset | based on compensation for variances in ancillary benefits that occur from plan to plan (inflation protection, early retirement, survivor and disability benefits). |
| $1000.00 offset | for pension credits for years between 1990 - 1996 |
| Vesting | a member of a pension plan has become entitled to the full or a partial amount of the employer's contributions. |
| Additional Voluntary Contributions (AVC) | employee makes extra contributions to increase the amount of the pension they receive from the plan. No direct effect on the employer's cost. |
| Calculation: Defined Contribution Pension Plan (or Money Purchase) | Employer contributions + Employee contributions + Reallocated forfeitures + Additional voluntary contributions (AVC) |
| Calculation: Defined Benefit Pension Plan | (9 x Benefit Entitlement) - $600.00 |
| Calculation: Deferred Profit Sharing Plan | Employer contribution + Reallocated forfeitures |
| Calculation: Combination Plan | Total of all pension credits for each component |
| T4: Employee contributions | RPP are tax deductible; reported in Box 20 RRSP not reported by payroll; tax receipt will be issued |
| T4: Employee and Employer contributions (PAs) | Defined contribution pension plan; reported in Box 52 |
| T4: Employer contribution to employees RRSP | Reported in Box 14 and in Other Information area using code 40 as they are cash taxable benefit; subject to CPP and EI |
| T4 - Statement of Remuneration Paid (4) | Issued by END OF FEB. 1. statutory deductions for C/QPP, EI, QPIP, and Income tax 2. remuneration $500 or over 3. amount provided for Group term life insurance 4. amount provided of security option benefits |
| T4 Summary - Summary of Remuneration Paid | form submitted by the employer electronically or paper. Paper copies must include a copy of the T4 slip (copy saved for files). |
| Completing T4 Summary (5) | 1. amounts reported in Canadian dollars/cents 2. for each payroll account No. and attach to font of the T4 slip 3. amounts must agree with totals on the T4 slip 4. Enter tax year related 5. Enter payroll account No., name, and address of employer |
| T4A - Statement of Pension, Retirement, Annuity and Other Income | report types of income not reported on T4 slip - Pension or superannuation, lump-sum payments, self-employed commission, patronage allocations, RESP, Grants, death benefits, wage-loss, partner/shareholder benefits, etc. |
| T4A must be issued if (4) | - payment more than $500.00 - income tax deducted from payment on T4A - over $50 paid for retirees of a Group term life insurance - over $25 paid by issuer of multi-employer benefit plan and provides taxable benefits to current/former employees |
| T4A Guidelines (5) | 1. prepare for each CRA payer's account No. 2. complete in alphabetical order by surname 3. amounts reported in Canadian dollars/cents 4. no negative amounts 5. headings of the boxes cannot be changed |
| T4A Summary - Summary of Pension, Retirement, Annuity and Other Income | Issued by END OF FEB. form submitted by employer electronically or paper. Paper copies must include a copy of T4 slip (copy saved for files). |
| T4A Summary Guidelines (3) | 1. amounts reported in Canadian dollars/cents 2. submit for each CRA payroll account No. 3. amounts must agree with totals on the T4 slip |
| Pensionable and Insurable Earnings Review (PIER) | a CRA document produces as a result of an audit check performed by CRA after receipt of T4 Summary. |
| Purpose of the audit check | to identify any deficiencies of CPP and EI. |
| CRA checks for deficiencies by | comparing pensionable and insurable amounts reported on T4 slips with required CPP or EI, based on calculations. |
| If there is a difference between CRA calculations and T4 amounts | employer will receive a PIER report. Respond by the deadline. Must remit amounts owed for employee and employer portions. |
| Common reporting errors | amounts not correctly reported in Box 24 (EI), 26 (C/QPP), 28 (Exempt C/QPP, EI) |
| CPP Deficiency (5) | 1. missed earnings in Box 14, reported in Box 26 2. taxable benefits/allowances added after last pay of yr. 3. chq issued with no CPP deductions 4. employee set up incorrectly 5. Box 14 includes non-cash taxable benefit, no remuneration pd in period |
| Filing methods for information returns (3) | 1. Internet file transfer 2. T4 Web forms 3. Paper |
| Employees receive T4 by (3) | 1. on copy electronically 2. two copies by mail 3. two copies in person |
| Issuing T4 electronic (3) | 1. is accessible through a secure electronic portal 2. secure site for printing the T4 slip is available 3. is an option to receive paper copies upon request |
| 2 Copies of T4 Slip (4) | 1. electronic conditions don't apply, unless consent has been given 2. employee requested 3. employee is on extended leave or no longer an employee 4. employee cannot reasonable access electronically |
| Electronic amend or cancel slips (5) | 1. must include amended and cancel slips only - no original slips 2. summary and transmittal must indicate slips amended - not original 3. file format must be XML 4. file name must be XML 5. filer No. must be valid |
| Paper amend slips (3) | Before filing: prepare a new slip After filing: prepare a new slip, write AMENDED on the top 1. file copy to CRA with letter explanation and payroll account No. 2. two copies sent to employee ASAP 3. retain a copy in employers file |
| Paper cancel slips | issue a photocopy of the original form clearly marked CANCELLED to the CRA. Issue two copies to the employee. |
| Replacing slips | provide a copy clearly marked DUPLICATE. |
Created by:
Moorebaier
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