CRA News, Information, and Events Specific to Registered Charities
Charities Connection is a new electronic publication that has replaced the Registered Charities Newsletter. It is shorter and gives registered charities more timely information on technical issues, new guidance and policy changes, Charities Directorate initiatives, and reminders.
No. 2 - May 2010
Payroll and Income Taxes
The impact of income tax rules on the payroll process can be confusing to people not used to the various requirements and deadlines. This article is a brief overview of a charity's tax obligations when it comes to paying its employees: what amounts must be deducted, what to do with the amounts after they are deducted, and how to report the deducted amounts to employees and to the Canada Revenue Agency (CRA).
Does my charity have employees?
The first step you must take is to determine the employment status of your charity's workers. For example, a charity may have volunteers, self-employed individuals that are contracted for services, or employees. Volunteers are not paid for their services and there are no payroll obligations. Self-employed workers have a degree of autonomy and are often paid through invoice. Employees are paid through a payroll. Figuring out the employment status can be difficult, and it is very important that the employment status be correct. If, after reviewing the information on the payroll webpages, you are still not sure of the correct employment status for the charity's staff, you can ask for an official decision (also known as a ruling) issued by an authorized officer of the CRA. A ruling states whether a worker is an employee or self-employed, and whether or not that worker's employment is pensionable or insurable. For more information see, How to obtain a ruling.
Although this article deals mainly with payroll for employees, if you make payments such as honorariums, scholarships, grants, or other amounts to non-employees, you may have other reporting obligations. If you make such payments, please see Guide RC4157, Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary.
What is included in employees' income?
After you determine that your charity has employees, you must include all amounts you pay to your employees when keeping track of their income. Income includes all monetary payments, allowances and employee benefits, unless the Income Tax Act specifically allows that they be excluded, or the CRA has an administrative policy allowing that amount or benefit to be excluded. Monetary payments include salaries, wages, bonuses, and vacation pay; allowances are amounts you give to employees to cover personal expenses; employee benefits are goods or services you provide to employees. For example, a charity may provide certain employees with automobiles for their personal use. Even though the employee does not receive cash in hand, the Act generally requires that the value of such goods or services be included in the employee's income. As a result, most benefits and allowances are taxable and must be included in the employees' income, but others may be partly or entirely tax-free, depending on the circumstances.
A kind of benefit that may be of particular interest to some registered charities is where the charity provides free board or lodging to a member of the clergy. In most cases, housing benefits are taxable and must be included in the employee's income; however, members of the clergy can claim a deduction in respect of their housing benefits.
What are the charity's obligations?
If your charity has employees, you must register with the CRA for a payroll account. You can add a payroll account to your existing Business Number (BN) account. You have three main responsibilities with respect to the charity's payroll: withholding, remitting, and reporting.
Deductions must be made for income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums from your charity's employees' wages. In addition to the amounts deducted from the employees' wages, your charity must also contribute to CPP and EI on its employees' behalf. Your charity's CPP contributions are equal to the employees' contributions, while your charity's EI premiums are 1.4 times the amount of its employees' premiums. The amounts deducted from the employees, as well as your charity's CPP contributions and EI premiums, are held in trust for the Receiver General until the amounts are remitted.
After deducting income tax, CPP contributions, and EI premium, your charity is responsible for sending, or "remitting," the deductions to the CRA. Most employers are "regular remitters," meaning that they must remit amounts withheld by the 15th day of the month following the month in which the deductions were made. If your charity has a large payroll, it may have to remit more frequently as an "accelerated remitter." In some circumstances, an employer with a small payroll may be allowed to remit quarterly. After your charity is registered for payroll purposes, it will be advised of how frequently it must remit. If your charity's remitting status changes, the CRA will advise it, in writing, when the next remittance is due.
At the end of the year, you must report the charity's employees' total income and deductions to the CRA. This reporting is done by filing a T4 Information Return (often called a T4 slip) and a T4 Summary by the last day of February of each year. Each employee's wages and deductions must be reported on a T4 slip, and a copy of that slip must be given to the CRA as well as to the employee. The T4 Summary totals all the wages and deductions for all your charity's employees. The amounts reported on the T4 Summary should equal the amounts remitted to the CRA throughout the year. Starting for the 2009 tax year (information returns filed in 2010), if you file more than 50 returns, your charity must file them with the CRA electronically.
What if my charity does not fulfill its obligations?
Although most employers meet their withholding, remitting, and reporting requirements, there are penalties in place to deal with cases of non-compliance. The CRA may charge a penalty for failing to withhold or remit CPP, EI and income tax amounts as required. Your charity may also be charged penalties for filing its information returns late, or for failing to file information returns electronically, where required.
Where can I get more information?
The CRA publishes a number of guides that provide in-depth information on the subjects outlined above. There is also a great deal of information on the CRA's payroll webpages, including links to those guides and a number of forms that you may need. You can also call the Business Enquiries line at 1-800-959-5525.
Changes to the Charities Information Sessions and Webinars
Since 1997, one of the ways the Charities Directorate has been educating volunteers and representatives of registered charities about charities' obligations under the Income Tax Act is by hosting Charities Information Sessions -- what we used to call Roadshows.
The Charities Information Sessions have evolved and a number of changes have been implemented throughout the years. We now offer online registration, we offer sessions in partnering with other CRA divisions and with the provinces, and we are able to accommodate requests for special sessions on specific topics.
In 2009, we launched the Charities Webinars. These online information sessions are a new communication tool for the CRA. Webinars provide an opportunity for people who live in rural areas and who cannot attend face-to-face Charities Information Sessions to learn about their charity's obligations. Webinars and webcasts are also convenient for people who want information on a specific topic and for those who have busy schedules and cannot take time off to travel and attend a three-hour session.
Because of the variety of media now being used for education purposes, we have introduced some changes to the schedules:
- Webinars will be held from January to June.
- Charities Information Sessions will be held from September to November.
- Recorded webinars are available on our website for viewing at any time.
- Special sessions will continue to be offered, on request, throughout the year.
For more information on our education programs, including registration information, see the Educational resources for charities webpages.
Update: Budget 2010 - Changes for charities
As you are aware, the 2010 federal Budget proposed several measures that affect registered charities. We have developed new webpages about the Budget 2010 changes for charities, which include:
- a message from the Director General of the Charities Directorate;
- a copy of the insert included with the Form T3010B, Registered Charity Information Return packages being mailed to charities beginning in May 2010; and
- questions and answers about the federal Budget.
We recommend that anyone involved in an administrative role with a charity check our webpages often. This is especially important in this period of change for charities. All new Budget-related information, including forms, guides, policies, and guidelines will be posted as they become available.
An effective way to keep up to date on these changes is to subscribe to the Charities and giving - What's new electronic mailing list. Subscribers to this list are notified by email when important information is added to our webpages.
- For a list of recent news and updates to our webpages, regularly check What's new.
- We welcome your feedback on our proposed and existing policies and guidance.
- For education on operating a registered charity, check out our Charities Webinars and Charities Information Sessions.
- All CRA charities-related forms and publications are available on our website.
- Do you have questions or comments about this edition of Charities Connection? Send an email to email@example.com
- Contact the Charities Directorate.
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