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Legislations and Regulations
-----------------------------
Federal and provincial/territorial legislation, and amendments to existing legislation and
regulations, can affect the operations of a payroll department, as the requirement to comply
with the new or amended legislation must be satisfied.
Legislation determines what the rules are, while regulations determine how the rules are to be
applied.
The methods for calculating income tax deductions are specified by the federal government
through regulations.
*Example:*
The Income Tax Act
The legislation: Specifies that employers are required to withhold income tax from employees.
The regulation: Specifies the taxation methods that should be used for non-periodic payments such as bonuses, retroactive pay increases, lump sum payments, etc.
Non-periodic bonus payments- Where a payment in respect of a bonus is made by an employer to an employee whose total remuneration (including the bonus) from the employer
may reasonably be expected to exceed $5,000 in the taxation year of the employee in which the payment is made, the amount to be deducted or withheld by the employer is dictated
through a calculation prescribed in the regulation within the Act.
Legislative change can prove to be anything but routine, particularly if the change is
implemented at a time other than at the beginning of a calendar year, or involves some sort of
retroactivity. The change may involve a series of adjustments to individual payroll accounts
and extra work for the payroll department to finalize reconciliations and year-end balancing
requirements.
In general, legislation, and in particular, labour legislation, is constantly being changed,
amended, repealed or revised. As a result, it is essential to keep up-to-date with the changes
in the jurisdiction(s) in which your organization operates.
Changes in legislation are generally publicized in the media. In large organizations, human
resource departments, tax specialists and corporate legal departments often provide this type
of information. However, in both large and small organizations, the payroll practitioner
should be proactive in keeping abreast of changes and bringing them to the attention of those
involved. There are many ways to keep informed of changes that impact payroll.
The following are some of the available resources:
- The Canadian Payroll Association offers a phone and email information service, Payroll InfoLine, for members' payroll related questions. The Association also has a website for members, www.payroll.ca, that contains guidelines, legislative updates and other useful payroll related information. As well, the Association is available on Twitter(@cdnpayroll), LinkedIn (The Canadian Payroll Association) and Facebook (@canadianpayroll).
- The Canada Revenue Agency (CRA) produces guides, publications, Income Tax Bulletins, folios and Circulars, posts news bulletins and enables participation on an electronic mailing list with e-mail alerts for new content to the Canada.ca website.
- The Revenu Québec (RQ) website provides guides, publications, bulletins, forms, online services and enables participation on an electronic mailing list with e-mail notifications of tax news articles - https://www.revenuquebec.ca/en/
- Employment/labour standards (federal, provincial and territorial) publications and websites. Each jurisdiction has a website providing information on their employment/labour standards. For example, the websites for Alberta and Québec are: Alberta - https://www.alberta.ca/employment-standards.aspx Québec - www.cnt.gouv.qc.ca/en
- Employment and Social Development Canada (ESDC) and Service Canada (SC) publications including information regarding the Employment Insurance (EI) program and the Social Insurance Number - www.canada.ca
- CCH Canada Limited publishes a series of volumes on employment and labour law, pensions and benefits, etc., that supplies information on legislation with regular updates as changes become law - www.cch.ca
- Carswell publishes The Canadian Payroll Manual and offers a phone and email service to subscribers - www.carswell.com
Legislative Compliance
~~~~~~~~~~~~~~~~~~~~~~~
In addition to payroll's primary role of paying employees accurately and on time, payroll
practitioners are also directly or indirectly responsible for supporting and/or ensuring
compliance with the requirements of various government acts. Where legislation requires
employer compliance (for example, remittance of payroll source deductions, Canada Pension
Plan contributions, Employment Insurance premiums, and federal and provincial/territorial
income tax deductions) there are financial penalties or the possibility of legal action to
encourage compliance.
Fines, penalties and interest charges are typically a result of audits and legal action. These
may result in seizure of bank accounts and/or assets, fines of $1,000 to $25,000, and in some
cases, jail sentences up to 12 months.
Government departments and agencies responsible for administering legislation employ a
variety of systems for tracking compliance. Some systems, such as the monitoring of source
deduction remittances, are ongoing, with regimented reporting time frames that lay down a
continual audit trail. Failure to meet the requirements of this legislation will incur a rapid
response that may result in fines and penalties.
Reporting requirements that do not involve ongoing, regular reporting may not impose an
immediate fine but may initiate a visit from an auditor or other official seeking compliance.
Some compliance systems operate quarterly or annually, and the observations raised by these
systems will result in requests for additional information or explanation and, in some cases, a
request for a supplementary payment and/or a fine.
*Example:*
**Record of Employment (ROE)** issuance
Failure to issue a ROE within the established deadlines may result in a visit from an investigative officer from Service Canada.
The Canada Revenue Agency's Pensionable and Insurable Earnings Review (PIER) is an annual compliance review system. This system utilizes the data provided on the T4
information slips issued at year-end to validate the amounts of CPP contributions and EI premiums deducted by employers, and identifies any remittance deficiencies.
Self-Assessment
~~~~~~~~~~~~~~~
Both the federal and provincial/territorial tax systems are based on the principle of selfassessment. This means that taxpayers and their agents, including employers, are responsible
for calculating, reporting and remitting their contributions and the amounts withheld within
the prescribed deadlines.
As administrators of the tax system, the Canada Revenue Agency (CRA) and Revenu Québec
(RQ) must ensure that each individual and organization is compliant and pays all of the
amounts owing.
Both the CRA and RQ recognize that taxpayers and agents are entitled to plan their affairs so
that they pay only the amounts that are legally due. It is acceptable to take advantage of tax
rules to minimize the amount of taxes paid. It is not lawful, however, to evade taxes owed by
failing to report income, failing to remit taxes due or providing the CRA or RQ with false
information.
The Employee-Employer Relationship
-----------------------------------