Overview

Canada supports these two methods of tax calculations:

• General Tax Formula

• Tax Formula Based on Cumulative Averaging

With either of the above calculation methods, depending on the type of earnings paid, these three tax formulas determine the tax deduction amount:

• Regular

• Nonperiodic

• Lump Sum

Regular

The regular taxation formula applies to payments made on a regular basis, for example, salary paid to an employee. This formula aggregates the total annual amount, reduces the personal exemption amount from it and then determines the tax deduction.

Nonperiodic

A nonperiodic taxation formula is used for infrequent payments that can't be annualized accurately, for example, bonus paid to an employee. In this case, the tax formula uses the annualized wage (from the regular tax run), and then adds the nonperiodic payment on top of this. The tax deducted is the difference between tax deducted from annualized regular payments, and tax deducted on the annualized regular payments plus the nonperiodic payment.

Lump Sum

Lump sum payments (also referred to as single payment) include income from pensions and Deferred Profit Sharing Plans received when leaving a plan. They also include payments like severance or retiring allowance when leaving a company. All lump sum payments should be combined when determining the composite rate to use for income tax.

Federal Tax Calculations

The Federal level tax calculations include:

• Federal Tax Calculation Method - Regular:

  • Option 1 - General Tax Formula - Regular Payments

  • Option 2 - Cumulative Averaging Tax Formula

• Federal Tax Calculation Method - Nonperiodic

  • Option 1 - General Tax Formula - Regular Bonus Calculation

  • Option 1 - General Tax Formula - Year to Date Bonus Calculation

  • Option 2 - Cumulative Averaging Tax Formula

Provincial Tax Calculations

The Provincial level tax calculations include:

• Provincial Tax Calculation Method - Regular:

  • Regular Payments

  • Cumulative Averaging Method 1

• Provincial Tax Calculation Method - Nonperiodic

  • Bonus and Retroactive Pay Method 1

  • Cumulative Averaging Method 1

Organizational Tax

The organizational tax attributes that Canada supports include:

• Tax Multiple Payments as One

  A payee may have multiple assignments, with each assignment consisting of different tax information. You have an option to combine all payments from the various assignments and tax them all as one payment. This is an option set at the payroll statutory unit (PSU) or tax reporting unit (TRU) level, with an override at the payroll relationship level. This option relates to both federal and provincial levels of taxes.

• Self-Adjust Methods

  The Self-Adjust Method determines the calculation of withholding for taxes taken as a percentage of earnings, until an employee's earnings reach an upper earnings limit. The Self-Adjust Method bases withholding calculations on year-to-date earnings instead of earnings this period. This method is captured at the PSU or TRU level, with an override at the payroll relationship level. This option relates to both federal and provincial levels of taxes.

  The Self-Adjust Method is applicable for the calculation of:

  • Canada Pension Plan

  • Employment Insurance

  • Quebec Pension Plan

  • Quebec Parental Insurance Plan

  The Self-Adjust Method has these three options:

  • Self-Adjust

  • No Self-Adjust

  • Self-Adjust at Maximum

• Employment Insurance (EI) Rate Per TRU

  Employment Insurance is a federal tax that applies to both employees and employers, as they both contribute to this tax. EI is calculated from the first dollar earned, with no exemption and an annual maximum contribution limit is applicable. No override is necessary for the EI rate assigned to the TRU.

  If multiple rates are required for different employee populations, you must create a new TRU for each rate. A separate Employer Account Number is issued to each new TRU to report the EI amounts.