Personal tax exemptions for payroll – are you getting it right?

In Canada, when an individual is employed, they must fill out a form known as a TD1 which is a Federal Personal Tax Credit form, together with, in most cases, a related Provincial form, such as a TD1BC – for British Columbia.

The Federal is easy, but sometimes it can be confusing when completing the Provincial Form when the employer and the employee are not in the same jurisdiction.

Let’s look at a few examples.  The head office of Company is in Ontario and processes payroll from the head office. The company also rents some working space in Nova Scotia.

Employee A works from home and lives in British Columbia. The employee would be required to complete a TD1ON for Ontario and have the taxes calculated accordingly.

Employee B lives in Nova Scotia and reports to the employer’s place of business there. The employee would complete a TD1NS for Nova Scotia, but if the employee works from home and never reports to the place of business in Nova Scotia, then the employee would need to complete a TD1ON where he is paid from.

Finally, a very common situation occurs when the employee lives in Quebec but reports to work at the employer’s place of business in Ontario.  Again, the employee will complete a TD1ON and be taxed as if he was a resident of Ontario.

Employee C works for a company that does not have a physical presence in Canada, then the payroll deduction tables that need to be used are called “Payroll Deductions Tables for in Canada beyond the limits of any Province/territory or outside Canada.

There are instances where undue hardship can be placed on the employee when following these rules, and there is some relief, particularly where too much tax is being deducted. An employee can complete a form T2013 which is a request to reduce tax, and once approved by Canada Revenue Agency, can supply the form to the employer who can then reduce taxes.

-Bill Smyth CPA, FCGA, FCPA. For more information contact [email protected]