E-Source Special Issue: Federal Budget 2015

The Canadian Payroll Association’s 2015 Federal Budget Analysis

2015 Federal Budget Disappointing from a Red Tape Reduction and Payroll Compliance Perspective

Finance Minister Joe Oliver tabled the 2015 Federal Budget on April 21, 2015. In attendance at the budget lock-up were Rachel De Grâce, Manager, Advocacy and Legislative Content and Janet Spence, Manager, Compliance Services and Programs from the Canadian Payroll Association.

The Budget contained no increases to personal income tax rates, but introduced direct and indirect measures impacting payroll and outlined the government’s efforts to combat the underground economy.

Proposed Measures Directly Impacting Payroll:

Measures announced in the 2015 Federal Budget directly impacting payroll include:

  • Lowering the EI premium rate in 2017
  • Extending compassionate care benefits
  • A quarterly remitter category for new employers
  • Federal adoption of the business number as a common business identifier
  • Enhanced CRA service options
  • Streamlining withholding requirements for non-resident employers
  • Modernizing the Canada Labour Code (for federally regulated employers)
  • Working While on Claim Pilot extended to August 2016

Lowering the EI Premium Rate in 2017

In 2017, the Government will implement the seven-year break-even Employment Insurance (EI) premium rate-setting mechanism, which will ensure that EI premiums are no higher than needed to pay for the EI program over time. Any cumulative surplus recorded in the EI Operating Account will be returned to employers and employees through lower EI premium rates once the new mechanism takes effect. This initiative is expected to result in a 21 percent reduction in the EI premium rate, from $1.88 in 2016 to an estimated $1.49 in 2017.

Extending Compassionate Care Benefits

Through the EI program, Compassionate Care Benefits provide financial assistance to people who have to be away from work temporarily to care for a family member that is gravely ill with a significant risk of death. The Government proposes to extend the duration of Compassionate Care Benefits from the current six-week benefit period to a benefit period of six months, as of January 2016.

A Quarterly Remitter Category for New Employers

Currently, new employers must remit withholdings monthly for at least one year. After that, they may be eligible to apply for quarterly remitting if they have an average monthly withholding amount of less than $3,000 and have demonstrated a perfect compliance record over the preceding 12 months.

Budget 2015 proposes to reduce the number of remittance payments that new employers must prepare and submit to the CRA. Beginning in 2016, new employers will be eligible for quarterly remitting if they have monthly withholding of less than $1,000 and maintain a perfect compliance record in respect of their Canadian tax obligations. This measure will not affect the amount of tax owing, just the timing of the payments. This amount of withholdings corresponds to the withholdings related to one employee at a salary of up to $43,500, depending on the province of residence.

According to Budget 2015, “the requirement to remit withholdings monthly until a track record has been established can be onerous for new businesses and other small employers, such as families that hire someone to help care for a child or ailing relative.”

While the Canadian Payroll Association has been supporting the Government’s goal of reducing red tape for over a decade, the focus on micro and small employers with straightforward payrolls is unbalanced when larger employers annually pay billions of dollars in undue administrative burden such as paper T4s and Requests for Payroll Information.

Missed Opportunity to Enable Employers to Save Over $100 Million Annually

While the Budget 2015 introduced measures to improve electronic services and to protect Canada’s environment, the Canadian Payroll Association is disappointed that the Federal Government did not introduce payroll-related measures to enable employers to issue electronic T4s to employees as the standard process. The Canadian Payroll Association recommended this sustainable economic step to reduce paper and financial burden for employers, government and employees in its pre-budget consultation submission to Minister Oliver.

“Providing employers with the legislative change to provide electronic T4s to employees as the standard practice, rather than paper, would negate the need for distributing and storing millions of paper T4 slips for employees who do not require a paper copy and could provide employers annual savings of over $100 million — at no cost to government,” says Patrick Culhane, President and CEO of the Canadian Payroll Association. “It is ridiculous that the government is using eT4s as the standard for its 250,000 employees but not enabling employers to save millions by doing the same.”

Federal Adoption of the Business Number as a Common Business Identifier

Budget 2015 announces the Government’s commitment to undertake initial planning and preparation required for federal adoption of the Business Number as a Common Business Identifier. The Budget also proposes to give the Minister of Employment and Social Development Canada (ESDC) and the Minister of Labour the authority to collect, use and verify Business Numbers to administer programs for which they are responsible.

The Business Number is a nine-digit number that the CRA assigns to an organization for tax matters. Under the proposed approach, an organization dealing with the federal government would only have to register once to be eligible to access a range of federal programs and services for organizations, instead of having to register separately under each federal service or program. This adoption would make it simpler for organizations to interact with government, and enable more efficient digital self-service.

Enhanced CRA Services

Budget 2015 acknowledges actions taken by the CRA to enhance its administrative processes and its service options for organizations, including many initiatives that the Canadian Payroll Association collaborated on, including:

  • Requiring CRA enquiries agents to use a standard Agent ID when dealing with organizations, making it easier for employers and representatives to provide feedback on CRA services
  • Launching its first mobile reminder app for CRA remittances
  • Expanding online payment options with the launch of pre-authorized debits
  • Developing a plain-language publication that will provide information to help organizations understand and prepare for the CRA audit process, including understanding their rights, responsibilities and available recourses

The Government will also propose legislative amendments to allow taxpayer information to be shared between tax and non-tax debt collectors within the CRA, in order to facilitate the collection of certain non-tax debts that are owed to federal or provincial governments.

Streamlining Withholding Requirements for Non-Resident Employers

Budget 2015 proposes an exception to income tax withholding obligations for qualifying non-resident employers, for payments made after 2015 to a non-resident qualifying employee who has an exemption from Canadian income tax because of a tax treaty and who is not in Canada for 90 or more days in any 12-month period that includes the time of the payment. (See the 2015 Budget papers for more details.) Although a qualifying non-resident employer will not be obligated to withhold tax under these circumstances, it will continue to be responsible for its reporting requirements under the Income Tax Act.

Modernizing the Canada Labour Code (for federally regulated employers)

Budget 2015 proposes to introduce amendments to strengthen and simplify administration and enforcement of the Canada Labour Code (CLC). These amendments will provide for new short-term and long-term unpaid leaves for family responsibilities and enhanced bereavement leave, to provide employees with increased flexibility to balance work and informal caregiving obligations in times of need. These amendments will also address violence and sexual harassment in federally-regulated private-sector workplaces, to ensure that employees are treated fairly and protected from harm in the workplace.

Budget 2015 also proposes to amend the CLC to ensure that interns under federal jurisdiction, regardless of pay, receive occupational health and safety protections and are subject to basic safety standards, and to clarify the circumstances under which unpaid internships can be offered.

The Canadian Payroll Association will update its members on these measures once more details on CLC amendments become available.

Working While on Claim Pilot Extended to August 2016

Budget 2015 proposes to extend the current EI Working While on Claim pilot project to August 2016. Under this pilot, claimants can keep 50 cents of their EI benefits for every dollar they earn, up to a maximum of 90 percent of the weekly insurable earnings used to calculate their EI benefit amount.

Other Potential Impacts on Payroll

Other components of the 2015 Federal Budget that may affect payroll include:

  • Tax-Free Savings Account limit increase
  • Canadian labour market enhancements
  • Financial Literacy Strategy

Tax-Free Savings Account Limit Increase

The Tax-Free Savings Account (TFSA) was introduced with an annual contribution limit of $5,000 per individual, indexed to inflation in $500 increments. On January 1, 2013, the TFSA annual contribution limit increased to $5,500 due to indexation. Budget 2015 proposes to increase the TFSA annual contribution limit to $10,000. This increase will apply as of January 1, 2015, so that a single annual contribution limit of $10,000 applies to the 2015 and subsequent calendar years. The TFSA annual contribution limit will no longer be indexed to inflation.

Canadian Labour Market Enhancements

Budget 2015 proposes the following initiatives impacting Canada’s labour market:

  • Reforming the Temporary Foreign Worker Program to ensure the program is used as intended and that Canadians are given the first chance at available jobs
  • Facilitating the harmonization of apprenticeship training and certification requirements in targeted Red Seal trades
  • Adopting the Blue Seal Certification program across Canada
  • Allowing employers to work with willing post-secondary institutions to better align curricula with their needs
  • Eliminating in-study student income from the Canada Student Loans Program needs assessment process
  • Investing in Aboriginal labour market programming
  • Renewing the Targeted Initiative for Older Workers
  • Developing a new one-stop information portal to support improved labour mobility

Financial Literacy Strategy

In 2015–16, the Government will release a national strategy to strengthen the financial literacy of all Canadians. The Canadian Payroll Association supports this initiative and proposes employers use the Association’s Pay Statement Best Practice Guidelines to promote financial literacy of employees regarding their statutory deductions.

Efforts to Combat the Underground Economy

The underground economy results in a loss of federal and provincial tax revenue and diminishes the fairness and integrity of the tax system. To support the CRA’s efforts to ensure taxpayer compliance, Budget 2015 proposes to expand and enhance programs to identify and combat the underground economy, including the use of advanced analytics and working with provincial governments to address local sectors participating in the underground economy.

Patrick Culhane, President and CEO of the Canadian Payroll Association, joined the CRA’s Underground Economy Advisory Committee, which met with the Minister of National Revenue, Kerry-Lynne D. Findlay on November 17, 2014. Its goal is to reduce the social acceptability of, and participation in, the underground economy in order to protect the fairness and integrity of the tax and benefit system, to protect the tax revenue base overall, and to ensure a level playing field for all employers and taxpayers.

The mandate of the Advisory Committee is to advise on the current underground economy trends, help identify emerging risks, deepen government’s understanding of taxpayer compliance behaviour, and contribute to the development of innovative compliance tools. This mandate is consistent with the Government of Canada’s commitments under the Red Tape Reduction Action Plan. This commitment includes seeking to simplify taxpayers’ overall dealings with the CRA, using risk-based approaches to focus on the most egregious cases, and using innovative techniques to improve administrative effectiveness and reduce the tax compliance burden for taxpayers.

Canada's 1.5 million employers count on payroll professionals to annually pay $865 billion in wages and taxable benefits, $290 billion in federal and provincial statutory remittances, and $163 billion in health and retirement benefits, as well as produce 26 million T4s, 9 million T4As, and 7 million RL–1s, all while complying with over 190 regulatory requirements.

See Federal Budget 2015 documents for more details on these and other measures affecting individuals and organizations.