The day after the federal budget, it might be useful to share some thoughts about researching this budget, as well as related provincial budgets, for changes that might affect payroll source deduction and reporting.
First of all, consider where you should be looking for information. Most of the major federal and provincial budgets receive substantial media coverage, such as on the CBC or in the business section of the Globe and Mail. Shortly after each budget is released there are also a variety of associations and accounting or law firms that provide summaries and commentary, some of which is available to the general public. For example, the KPMG website provides free access to its federal budget commentary. However,this commentary may not be targeted at those specifically interested in payroll or source deductions.
A good place to research each budget remains the websites where each government posts its budget documents. This means, for example, the federal Department of Finance as well the Quebec Ministry of Finance websites, not those of the Canada Revenue Agency or the Ministère du Revenu du Québec. Presumably, most people are also aware that each province or territory has its own annual budget and details of these are to be found on each respective provincial or territorial website.
On these sites, you will generally find three different types of budget documents: copies of the minister’s budget speech, backgrounders describing the budget in general terms and more technical descriptions of any proposed legislative changes. You have to decide for yourself what level of detail you wish, but the most detailed information is available in the last of these three. This technical information is generally found as appendices and usually labelled using some combination of the following terms: fiscal measures, supplementary information, ways and means motions, etc. In the federal budget documents, this technical information has two parts: one, what has traditionally been labeled as “Tax Measures: Supplementary Information” and, two, “Notices of Ways and Means Motions.” These notices are the most precise statement of each budget change. They may contain either the actual wording of a proposed legislative change or what a programmer would describe as pseudo-code, language that paraphrases very closely any such changes.
One thing to keep in mind as you read this information is the effective date of any budget change. While it’s uncommon, sometimes budget changes are timed to be effective with the budget speech itself. So, for example, the 2010 federal budget made changes to the taxable benefit treatment of stock options, effective 4:00 p.m., Eastern Standard Time, March 4. Generally, the budget documents describe a change as effective starting with a specific tax year.
If a budget change is described as being effective for the current tax year, then this has two possibilities. Some budget changes may just affect year-end reporting on T4 or RL-1 slips. If this is the case, employers may be faced with a situation that they may have to report YTD values not previously tracking, before the announced budget change. However, it’s more common that a budget change made effective for the current tax year will be implemented as a change to source deductions, effective July 1. If this is the case, you have to be wary of the actual changes required.
Let’s make up an example to illustrate this point: currently the lowest federal income tax rate is 15 percent. Assume that this rate is being changed in this week’s federal budget to 14 percent, effective for the tax year 2012 (I know this is unlikely). At first glance, this is a change of one percent. You might be surprised to find that the CRA will tell employers to use 13 percent as the withholding rate, effective July 1. The reasoning in such a scenario is that as the change applies for the whole tax year, and as there are only six months from July 1 in which to implement such a change, the amount of the change is doubled. A consequence, is that in such a scenario, this withholding rate would return to 14 percent, effective the following January. The point is to be very cautious of quoting the rates used in a budget document, before you fully understand how they affect any source deductions in the current year.
Lastly, the final, and for source deduction purposes, the most authoritative source of information on any budget changes that affect source deduction, are the CRA T4127 guide and the corresponding MRQ guide, TP-1015.F-V. In this last, the “V” signifies English and the “F” that this is the formula guide.
Alan McEwen & Associates