employee – Small bussiness accounting solutions

CHANGES TO PAYROLL: Correcting Errors

August 30, 2020 0 By Xienan Shaw

COVID-19 pandemic, have made many adjustments to payroll for businesses

CHANGES TO PAYROLL: Correcting Errors

What if I make a clerical, administrative, or system error resulting in a salary overpayment? On April 6, 2020, CRA released the updated guide RC4120 Employers’ Guide – Filing the T4 slip and Summary providing detailed instructions on these such issues.

The employer may elect to have the employee repay the net amount (gross amount less CPP, EI and income tax withheld) overpaid due to the error, provided they meet the following criteria:

no later than three years after the end of the year in which the salary was overpaid
- the employer made the election in the prescribed manner (see below),
- the employee repaid or arranged to repay the net amount of the overpayment;
the employer did not issue a T4 slip with the employee’s correct earnings (that is, with the salary overpayment removed); and
the employer’s business is actively operating.

This election would reduce the cashflow burden the employee would otherwise bear.

The election

The election is made by either excluding the salary overpayment from an original T4 slip or amending a T4 slip to remove the overpayment and reducing the corresponding income tax deducted, along with CPP and EI withheld and remitted.

Repayment after the T4 is issued

If the employee repays or arranges to repay after the original T4 is issued, the employer must amend the T4 slip appropriately, including any relevant CPP and EI adjustments.

After CRA receives and processes the amended T4, it will credit the income tax, CPP and EI remitted on the salary overpayment made in error (including the employer’s share of CPP contributions and EI premiums) to the employer’s payroll program account. The employer can then reduce the next payroll remittance by the credited amount.

Finally, CRA also provided guidance and examples for situations in which the employer does not elect to have the net amount repaid, and the gross amount is repaid instead.

ACTION ITEM: Over the course of the COVID-19 pandemic, many adjustments have been made to payroll for businesses. If a T4 correction or wage adjustment is required, consult with the detailed guidance in publication RC4120, or reach out for assistance.

Reimbursing Employees for Technology Costs: Working from home

August 23, 2020 0 By Xienan Shaw

Up to $500 reimbursement to employees for the personal purchase of equipment for working remotely

Reimbursing Employees for Technology Costs: Working from home

In an April 14, 2020 French Technical Interpretation, CRA was asked whether amounts paid to an employee for costs of equipment for working remotely would be a taxable benefit.

Generally, a reimbursement for a personal purchase of equipment used for working remotely would be a taxable benefit. However, CRA noted that in the context of the COVID-19 pandemic, which has required many employees to work remotely, acquisition of computer equipment may be primarily for the employer’s benefit. In that context, CRA indicated that no taxable benefit would arise for a reimbursement, supported by actual invoices or receipts, of no more than $500 towards such equipment.

CRA also stated that a non-accountable allowance would always be taxable, as no provision would provide for an exclusion of such amounts.

CRA did not comment on the consequences if the equipment were used exclusively for employment and was owned by the employer, not the employee. CRA has indicated in the past that, where equipment is property of the employer, and any personal use is incidental, there would be no taxable benefit to the employee.

ACTION ITEM: Consider providing a reimbursement to employees for the personal purchase of equipment for working remotely of up to $500.

CPP/EI RULINGS: Do they Trigger Payroll Audits?

March 4, 2020 0 By Xienan Shaw

CRA comments on whether a CPP/EI ruling triggers follow-up assessing and review.

TRAVEL EXPENSES Shareholder-Employees

February 26, 2020 0 By Xienan Shaw

CRA released the promised guidance for employment expenses incurred by shareholder-employees to be deductible:

TRAVEL EXPENSES Shareholder-Employees Deductible?

For an employee to deduct travel or motor vehicle expenses against employment income, the employee must be normally required to work away from the employer’s place of business, be required to pay the travel expense under the contract of employment, and have a signed and completed T2200. Also, the employee cannot receive an allowance excluded from income.

In 2017, CRA began denying travel expenses claimed on the personal tax return of many employees who were also shareholders of the employer or related to a shareholder. After receiving concerns from stakeholders regarding this new assessing practice, CRA reversed their assessments, indicating that “clear guidelines for taxpayers and their representatives” were important to the Canadian self-assessment system and that additional consultation and guidance was needed in this area.

In September of 2019 CRA released the promised guidance. It noted that the following conditions had to be met for employment expenses incurred by shareholder-employees to be deductible:

The expenses were incurred as part of the employment duties and not as a shareholder.
The worker was required to pay for the expenses personally as part of their employment duties.

When the employee is also a shareholder, the written contract may not be adequate, and the implied requirements may be more difficult to demonstrate. However, CRA noted that both of these conditions may be satisfied if the shareholder-employee can establish that the expenses are comparable to expenses incurred by employees (who are not shareholders or related to a shareholder) with similar duties at the company or at other businesses similar in size, industry and services provided.

ACTION ITEM: Instead of deducting amounts against employment income, consider whether it would be better for the company to reimburse expenses of shareholder-employees, or perhaps, pay a tax-free travel allowance. If amounts will continue to be paid personally, retain support that shows how the travel expenditures are reasonable as compared to those of other similar arm’s length workers.

EMPLOYMENT EXPENSES Costs of an Assistant

February 19, 2020 0 By Xienan Shaw

A deduction can be claimed for salary paid to an assistant. Any deduction must be for salary, requiring it be paid to an employee.

EMPLOYMENT EXPENSES Costs of an Assistan

A November 5, 2019 Tax Court of Canada case reviewed the deductibility of employment expenses by a manager overseeing the Canadian sales force and operations of a multinational manufacturer of dental instruments and products. The taxpayer’s employer had no Canadian office, and she travelled extensively to meet with sales representatives, dealers and customers throughout Canada.

Expense of assistant

Almost half of the taxpayer’s claimed expenses, which exceeded $80,000, related to her husband’s role as her assistant. The Court noted that a deduction can be claimed for salary paid to an assistant, but that there were several problems with her claim, including the following:

The taxpayer’s husband was treated as self-employed and not as an employee. Any deduction must be for salary, requiring it be paid to an employee. This alone was fatal to the deduction claim.
The amount was not paid to her husband. Rather, they simply had a single joint bank account through which they both transacted. Lack of payment alone would prevent any deduction.
The taxpayer’s employer indicated it was the taxpayer’s decision whether she required an assistant. As her employer didnot require her to hire an assistant, no deduction was available. This item alone would also prevent any deduction.
The husband’s services described were largely clerical, administrative, secretarial or driving, for which his hourly fee of $75 was not “anywhere close to the range of reasonable”.
The husband’s hours set out in quarterly billings were not supported – he could only account for a small fraction of the hours invoiced.
The husband claimed business expenses of almost 75% of his fees; however, the couple could not describe what expenses he incurred. The taxpayer “was sure this was a mistake”.

No deduction was allowed for these costs.

ACTION ITEM: Support and documents are often requested by CRA when deductions against employment income are claimed. Ensure to retain all such support. If no T2200 has been provided for the current year, enquire with your employer as to whether one is available for the next.

WORKERS COMPENSATION: Replacement Payouts by Employer

October 14, 2019 0 By Xienan Shaw

If receiving full salary even after being injured, consider whether some of it could be classified as Worker Compensation and therefore tax-free

WORKERS COMPENSATION: Replacement Payouts by Employer

In a March 29, 2019 Tax Court of Canada case, the taxpayer had been injured on the job and was held eligible for workers’ compensation (WC) payments by the relevant provincial authority. However, in accordance with the collective agreement setting out his terms of employment, he was paid 100% of his salary by his employer and, therefore, did not receive payments from the provincial WC authority. He argued that the maximum provincial WC should be included in income as WC and not as employment income. The distinction is important because an offsetting deduction is available for WC such that no tax must be paid.

Taxpayer wins

The taxpayer’s eligibility for the employer-paid compensation was determined under provincial law. As such, the Court found that the maximum WC benefits, 85% of his salary, were properly considered WC and, therefore, deductible from taxable income.