These are the most important things you need to know before you begin your first 2012 payrolls and while preparing to issue T4s, T4As and RL-1s for 2011. We break this down between new reporting requirements for the 2011 tax year and new source deduction requirements for payments made after January 1, 2012.
Reporting changes for 2011
There are two minor changes to T4 reporting. First, as of the 2011 tax year, the Canada Revenue Agency wants employers to always put a number in Boxes 24 and 26. Previously, Box 24 only had to be completed if there was a difference between EI insurable earnings and gross taxable income as reported in Box 14. Similarly, Box 26 only had to be completed if there was a difference between CPP/QPP pensionable earnings and gross taxable income in Box 14. As of the 2011 tax year, the actual earnings used for source deduction purposes have to be reported. Where no source deductions were due, enter a zero in Boxes 24 and 26. Second, employers now have to report the exempt portion of any payments to volunteer firefighters and other emergency workers, using code 87 in the “other information” area.
There are no changes indicated by the CRA in T4A reporting requirements for the 2011 tax year.
The Ministère du Revenu Du Québec has introduced a new, legal-sized format—8.5 inches by 14 inches—for the RL-1 slip, starting with reporting for the 2011 tax year. Like the changes made previously to the T4 and T4A, the new RL-1 has code boxes meant to replace notes previously written in the middle of the slip. See guide TP-1015.PM, Principal Changes, for a list of the new reporting codes. Also, like the CRA, the MRQ now requires that employers report the exempt portion of any payments to volunteer firefighters and other emergency workers, using the new code “L-2”. Note that the Commission de la santé et de la sécurité du travail (CSST) premiums that employers began remitting to the MRQ in 2011 are not reported on the RL-1 summary, the RLZ-1.S form. Instead, the CSST will mail employers a summary of the 2011 premiums remitted through the MRQ, as part of CSST year-end reporting.
Source deduction changes for 2012
The indexing factors for 2012, and the resulting basic personal tax credit amounts, have now been released.
These indexing factors are used to increase two different sets of numbers in the income tax source deduction formulas. First, some personal tax credits are increased from year to year, based on these indexing factors. Second, where jurisdictions have multiple income tax rates, the income ranges for each such rate are shifted upward from year to year, based on these indexing factors. A blank entry in the indexing factor means that jurisdiction does not index any of these values. Note that for 2012, the basic personal tax credit amount is decreasing in Nova Scotia, from $8,731 to $8,481.
|
2012 Tax Year |
Indexing |
Basic |
|
Fed |
2.4% |
10,822 |
|
BC |
2.4% |
11,354 |
|
AB |
1.8% |
17,282 |
|
SK |
2.8% |
14,942 |
|
MB |
8,634 |
|
|
ON |
3.3% |
9,405 |
|
QC |
2.66% |
10,925 |
|
NB |
2.8% |
9,203 |
|
NS |
8,481 |
|
|
PE |
7.708 |
|
|
NL |
3.1% |
8,237 |
|
YT |
2.8% |
10,822 |
|
NT |
2.8% |
13,280 |
|
NU |
2.8% |
12,211 |
What impact does this indexing have on the requirement for employees to file TD1s? The CRA has for some time now discouraged employees from filing TD1s on a annual basis. Supplying employers with an indexing factor is meant to avoid employees having to file a TD1, except upon hiring or when their tax circumstances change and a previously filed TD1 is no longer valid.
However, there are circumstances in which employees will have to re-file a TD1 on annual basis. This happens when the employer does not separate the TD1 values stored for employees between the tax credit amounts subject to indexing and those that are not indexed from year to year. Where payroll systems only store a single TD1 amount for each employee, or rather one each for the federal and provincial versions of this form, employees will have to re-file the TD1 on an annual basis, where employees claim a mix of indexed and non-indexed personal credits.
There are no changes to the for 2012 income tax rates at either the federal or provincial levels. However, based on the indexing factors above, income tax ranges have shifted upward for 2012 in the following jurisdictions: Federal, BC, SK, ON, QC, NB, NL, YT, NT and NU. Where the income ranges are indexed upwards, this amounts to an income tax reduction in the overall tax paid.
The biggest changes in source deductions in 2012 are to the CPP and QPP programmes. The following chart shows some of the 2012 contribution rates for for Quebec and all other jurisdictions.
|
All other jurisdictions
|
Quebec |
||||
|
CPP
|
EI | QPP | EI |
QPIP |
|
| Employee rate |
4.95% |
1.83% | 5.025% | 1.47% |
0.559% |
| Employer rate |
4.95% |
2.562% | 5.025% | 2.058% |
0.772% |
| Maximum earnings |
$50,100 |
$45,900 | $50,100 | $45,900 |
$66,000 |
| Maximum employee deduction |
$2,306.70 |
$839.97 | $2,341.65 | $674.73 |
$368.94 |
Notice in the above table that the CPP and QPP contribution rates are no longer the same. This results in a higher QPP employee annual contribution than for CPP. But the biggest change is the introduction of phased retirement into the CPP.
Starting with the 2012 tax year, employees between the ages of 60 to 70 will no longer be automatically exempt from CPP contributions just because they are being paid a CPP or QPP retirement pension. This does not affect employees in receipt of a CPP or QPP disability pension; such employees remain CPP-exempt, irrespective of age. Starting with payments after January 1, 2012:
- CPP contributions are mandatory for employees between 60 and 65 who receive CPP or QPP retirement pensions, even for such pensions whose payment began prior to 2012
- Employees in receipt of CPP or QPP retirement pensions between the ages of 65 and 70 may opt out of CPP contributions
- Employees over age 70 are CPP-exempt, whether or not they are receiving a CPP or QPP pension
As is it has always been, employer CPP contributions match employee contributions, so the employer share of CPP costs will be affected by employee decisions to apply for a CPP or QPP retirement pension between ages 65 and 70 and whether to opt out after age 65.
Information not yet available
As of writing, none of the following information is available:
- 2012 federal or provincial TD1 forms
- Automobile rates for 2012 taxable benefit calculations
- The prescribed interest rates for the first quarter of 2012
The 2012 automobile rates should be released by the end of the year, while the prescribed interest rates for the first quarter in 2012 should be available in early December.
Alan McEwen & Associates
[email protected]
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