Discharging payroll responsibilities in Canada requires a strong understanding of various federal, provincial and territorial legislation. Whereas most federal, provincial and territorial payroll legislation is quite similar, in Quebec, there are some very unique requirements. For those unfamiliar with paying employees in Quebec, the following provides a general overview of the primary differences in this unique Canadian payroll jurisdiction.
In all jurisdictions where an “employee-employer relationship” exists, employers are required to make certain of the following withholdings from employee payments:
- Canada or Quebec Pension Plan (CPP/QPP) contributions,
- Employment Insurance (EI) and possibly Quebec Parental Insurance Plan (QPIP) premiums,
- Federal and provincial income taxes.
For CPP/QPP withholdings, employers need to know the differences between the Canada and Quebec Pension Plans. Both plans begin contributions when an employee:
- is working in pensionable employment;
- is a minimum of 18 years old; and
- has pensionable earnings.
The basic difference involves the employee’s age and time when contributions to the plans cease.
Currently, for all jurisdictions except Quebec, CPP contributions end once an employee reaches age 70, draws an early retirement pension (as early as age 60) or receives a CPP disability pension. Under the QPP, as long an employee is working she/he continues to contribute to the plan, regardless of age. Therefore, a Quebec employee who is 72 years old will continue to contribute to the QPP as long as he/she has pensionable earnings and is in pensionable employment.
Readers should note that changes to the Canada Pension Plan will take effect on January 1, 2012. Under these changes, employers will no longer cease contributions upon collection of early retirement benefits (age 60). Please read the article starting on page 6 of this newsletter and visit Canada Revenue’s Agency’s (CRA) web site (http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/cpp-rpc/cppchng-eng.html) and Service Canada’s (SC) web site (http://www.servicecanada.gc.ca/eng/isp/cpp/postrtrben/main.shtml) for information concerning these changes.
Employment Insurance (EI) premiums are withheld from all individuals receiving insurable earnings and considered to be in insurable employment. There are no age restrictions for EI premiums. As long as the employee is working and receiving wages, EI premiums are withheld.
In addition to federal EI premiums, Quebec Parental Insurance Plan (QPIP) premiums are withheld from all Quebec employees in insurable employment. Like federal EI premiums, there are also no age restrictions for QPIP premiums. As long as the employee is working and receiving wages as a Quebec employee, QPIP premiums are withheld.
Income tax withholdings
Quebec is the only provincial jurisdiction in Canada that directly collects and administers its income tax withholdings. By agreement, the federal CRA handles the collection and administration of income tax withholdings for all other provinces and territorial jurisdictions.
As their first step when determining withholding taxes, employers have to ascertain an employee’s province of employment. The province of employment is generally the province in which the employee physically reports to an establishment of the employer. If there is no business establishment, the province of employment becomes the province from which the employee is paid. The province of residence has no impact on this equation from a payroll withholding perspective.
Once province of employment is determined, the employer needs to be aware of the employee’s personal tax credit claims. In all federal and provincial jurisdictions, two forms are required for this purpose. For all jurisdictions except Quebec, employees complete both a federal and provincial personal tax credits return (TD1 form). In Quebec, employees need to complete a federal TD1 form and a provincial source deductions return (TP1015.3-V). If no forms are completed / received from an employee, the employer must withhold taxes based on the “basic exemption” amount.
Determining whether earnings are taxable or non-taxable for Quebec employees is not easy. In fact, employers must be aware of some specific differences.
Both CRA and its Quebec counterpart, the Quebec Revenue Agency (QRA), permit reductions from taxable earnings for contributions to registered pension plans and registered retirement savings plans. Federally, union dues can also be used to reduce taxable income. However, this is not the case in Quebec.
Additionally, the QRA has a broader taxable income base then the rest of the Canadian jurisdictions. For example, employer-paid contributions to private health and dental insurance plans are taxable in Quebec, but not elsewhere. Also employer-paid premiums for accidental death and dismemberment insurance are taxable for Quebec employees.
Another difference is that outside Quebec most Canadian employers are permitted to give an employee a non-accountable moving allowance of $650, provided certain conditions are met, which is excluded from income. However, Quebec employers can give qualifying employees a non-accountable moving allowance equivalent to two weeks of wages. So an employee in Quebec who earns $1,000 biweekly can receive an allowance of $1,000 that is not subject to QPP contributions, QPIP premiums or Quebec provincial tax withholding.
It is important to keep in mind that these are only some of the differences. Others can be found in the tax guides that both governments publish, such as Quebec’s Guide for Employers – Source deductions and Contributions (TP-1015.G-V), as well as the Taxable Benefits Guide (IN-253-V).
Having employees in Quebec means that employers will have to make at least two separate remittances to the government agencies. Remittance frequency is determined by the average of the employer’s monthly remittance to either government. One remittance will be made to CRA and will include EI premiums and federal Quebec taxes. The second remittance to QRA will include QPP contributions; QPIP premiums, the Quebec health services fund levy and Quebec provincial income taxes. Quebec also levies a labour standards tax and a training tax. The latter two payments are reconciled and paid at year-end when completing the annual RL-1 Summary form.
Year-end reporting is definitely more labour intensive for Quebec employers. Each Quebec employee receives at least two information slips at year-end: a federal T4 slip and a provincial RL-1 slip. The slips summarize the total taxable income and statutory deductions. In all other jurisdictions the employee receives only the federal slip. Although EI premiums are a federal withholding requirement, total premiums withheld in Quebec are still reported on the RL1 slip. Similarly QPP contributions and QPIP premiums are identified on both slips. Income tax withholdings are reported separately: federal tax on the T4 slip and provincial tax on the RL1 slip. Due to the differences mentioned above, employment income on a Quebec employee’s T4 and RL-1 can be different amounts.
As you can surmise from this overview, attention to detail is always an important part of completing any payroll. Employers with employees in Quebec and other parts of Canada have to be especially vigilant. They should have reference materials for both jurisdictions on hand, and consult them in detail to maximize compliance and minimize errors.