Canadian Payroll Reporter

CPR | August 2014 aSk an experT Annie Chong 7 Canadian HR Reporter, a Thomson Reuters business 2014 manageR of CaRswell's payRoll ConsulTing gRoup annie.chong@thomsonsreuters.com | (416) 298-5085 elements of a non-taxable allowance QUeSTion: Our company will be paying some employees a monthly per-kilometre car allowance for using their personal vehicle for business reasons. Under what conditions are these allowances considered non-taxable? ANSWER: For an automobile allowance to be considered non-taxable, it must be consid- ered "reasonable," according to Canada Revenue Agency (CRA) and Revenu Québec guidelines. An automobile allowance is generally considered reason- able if all of the following con- ditions apply: • The allowance is based solely on the business kilometres driv- en in the year. • The rate per business kilome- tre is reasonable. • The employee does not re- ceive any additional reimburse- ment for automobile-related expenses, except for employer reimbursements for toll or ferry charges or supplementary busi- ness insurance if the employer determined the allowance with- out these reimbursements. If all of these conditions are met, the allowance will be con- sidered "reasonable" and will therefore not be subject to source deductions. The federal Income Tax Act does not specifically define what a reasonable per-kilometre rate would be; however, the general practice is to follow the automo- bile expense deduction limits that the federal Finance Ministry sets each year. For 2014, it has set the follow- ing limits: • 54 cents per kilometre for the first 5,000 kilometres driven in the year (58 cents in the North- west Territories, Nunavut and Yukon) • 48 cents per kilometre for each additional kilometre driven in the year (52 cents in the North- west Territories, Nunavut and Yukon). Revenu Québec has a simi- lar position, whereby the rea- sonableness of the reimburse- ment rate is limited to amounts eligible to be deducted under Quebec tax laws and regula- tions. As an example, if you pay an employee a car allowance of 50 cents per business kilometre travelled and you do not provide for any additional reimburse- ment of automobile-related ex- penses (such as gasoline), the allowance would be considered reasonable and as such is exclud- ed from the employee's taxable income. There would be no require- ment to deduct C/QPP contri- butions, EI and QPIP premiums or income tax or to report these payments on the employee's T4 and RL-1 forms. However, if you pay an employee a straight fixed allowance of $350 per month, this flat amount would be con- sidered taxable income, as the payment was not calculated solely on the basis of business ki- lometres driven. If the payroll department pays employees both a flat-rate auto- mobile allowance plus a reason- able per-kilometre automobile allowance that cover the same use for the vehicle, the total combined allowance is included in income. employer obligations for a T2200 Question: are employers required to complete a form t2200 for an employee? ANSWER: Form T2200, Decla- ration of Conditions of Employ- ment, is a CRA form commonly used by salespeople who, under their conditions of employment, are required to pay their own expenses (such as motor vehicle expenses and travel expenses, or home office expenses). In order for these employees to deduct the expenses from their income when filing an in- dividual tax return, their em- ployer must complete and sign the form. After signing, the employer gives the form to the employee, who must keep it in case the CRA asks to see it. The CRA publishes the Em- ployment Expenses Guide (T4044), which provides de- tailed information on what ex- penses individuals may claim and which forms they must complete. The CRA will determine whether individuals qualify for a deduction based on their per- sonal income tax return. Individuals in Quebec must also have their employ- er complete form TP-64.3-V, General Employment Condi- tions, which is similar to the federal form. When filing their Quebec personal tax return with Revenu Québec, the individuals must submit the completed and signed form. Revenu Québec publishes the brochure IN-118-V, Employ- ment Expenses, which provides detailed information on what expenses individuals are al- lowed to claim. Guidelines for creating electronic Td1s Question: i understand the CRa allows employers to create their own electronic tD1s, personal tax Credit Returns. is there a specific template i have to follow? ANSWER: The CRA does not provide specific instructions for creating electronic TD1s, although it does state employers must meet the following condi- tions for TD1s to be acceptable: • You must put in place security measures to verify the identity of employees submitting the forms since there is no way to have a written signature. This could in- volve using a password system. • The form must look exactly like the CRA's paper version. • The form must include a date so you know when the employee submitted it. • The form must include a cer- tification that confirms the em- ployee has provided accurate information. The CRA suggests employees could click a button stating "I agree" with a statement like the one on the paper version: "I certify that the information given in this return is, to the best of my knowledge, correct and complete." • Make sure the format of the form cannot be adjusted, mean- ing an employee can only make changes to his TD1 by submit- ting a new form. • The employer must make the electronic forms "available and accessible" to the CRA upon re- quest and format the TD1s in a way CRA staff can read them. • The forms must meet all of the CRA's record retention and electronic record requirements. This requires employers to keep all payroll records of earnings subject to source deductions and employer contributions for at least six years after the tax year to which they apply, un- less the employer has the CRA's written permission to destroy them. Employers must keep the records at their place of business or residence in Canada or at an- other location the CRA speci- fies. Employers keeping records in an electronic format must keep backup records.

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