Indians – Tax-exempt employment income
If you are an employer paying tax-exempt salary or wages, benefits or allowances to an Indian employee, you do not have to deduct CPP/QPP contributions; however, you have to deduct EI premiums and PPIP premiums (for employees working in Quebec). For more information, see Guide T4001, Employers’ Guide – Payroll Deductions and Remittances.
How to fill out the T4 slip
Prepare the T4 slip in the following way when you pay a tax-exempt salary or wages to your Indian employee.
Enter your operating or trade name.
Employee’s name and address
Enter the employee’s name and address, including the province or territory and postal code.
Box 10 – Province of employment
Enter the provincial or territorial abbreviation.
Box 12 – Social insurance number
Enter the SIN, as provided by the employee.
Box 14 – Employment income
Leave this box blank. Instead, in the "Other information" area, enter code 71 and the amount of the exempt salary or wages paid to your Indian employee in the year.
Boxes 16 and 17 – Employee’s CPP/QPP contributions
The employment of an Indian whose income is exempt from tax is excluded from pensionable earnings; however, you can elect to provide your Indian employees with optional CPP coverage by filling out and filing Form CPT124, Application for Coverage of Employment of an Indian in Canada Under the Canada Pension Plan Whose Income is Exempt Under the Income Tax Act.
If you did not elect to provide CPP/QPP coverage to all your Indian employees on their tax-exempt employment income, leave this box blank.
If you did elect to provide CPP/QPP coverage, enter the CPP/QPP contributions you deducted from the employee’s earnings.
For more information, see Guide T4001, Employers' Guide – Payroll Deductions and Remittances. For optional QPP coverage, fill out and file Form RR-2-V, Election to Participate in the Québec Pension Plan: Indian Employees Whose Employment Is Excepted by Reason of a Tax Exemption. For more information, see Guide TP-1015.G-V, Guide for Employers: Source Deductions and Contributions, which you can get from Revenu Québec.
Box 18 – Employee’s EI premiums
Tax-exempt salary or wages paid to your Indian employee are insurable earnings and you must deduct EI premiums. Enter the EI premiums you deducted.
Box 20 – RPP contributions
Leave this box blank. Registered pension plan (RPP) contributions made with respect to tax-exempt employment income are not deductible by your employee.
Box 24 – EI insurable earnings
Enter the amount of insurable earnings on which you calculated the EI premiums, up to a maximum of $54,200 for 2020. Enter "0" if there are no insurable earnings.
Box 26 – CPP/QPP pensionable earnings
If you did not elect to provide CPP or QPP coverage to all your Indian employees on their tax-exempt employment income, enter "0."
If you did elect to provide CPP/QPP coverage, enter the amount of pensionable earnings on which you calculated the CPP/QPP contributions, up to a maximum of $58,700 for 2020.
Box 28 – Exempt (CPP/QPP, EI, and PPIP)
Leave this box blank if you entered an amount greater than "0" in box 16, 17, or 26. Enter an "X" or a check mark under CPP/QPP only if the earnings were exempt for the entire period of employment.
Box 44 – Union dues
Leave this box blank. Union dues paid in respect of tax-exempt employment income are not deductible by your Indian employee.
Box 52 – Pension adjustment
Tax-exempt salary is included when determining the pension adjustment amount. See Box 52 – Pension adjustment for details.
Box 55 – Employee’s PPIP premiums
Tax-exempt salary or wages paid to an Indian in Quebec are insurable earnings and you must deduct PPIP premiums. Enter the PPIP premiums you deducted from employees working in Quebec.
Box 56 – PPIP insurable earnings
For employees working in Quebec, enter the total amount used to calculate the employee’s PPIP premiums, up to a maximum of $78,500 for 2020.
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