Question

Maria works for a retail clothing chain in Ontario. She is a supervisor in the Human Resources department and earns $39,000.00 annually, paid on a bi-weekly basis. Her federal and Ontario TD1 claim code is 2.

Maria’s employment contract requires her to travel to other store locations to conduct interviews. She must use her own vehicle, and in turn, she receives an annual car allowance of $3,250.00, paid on a pay period basis. As Maria is not required to report to the company the business kilometres she drives, and she is paid a flat dollar amount, the car allowance is taxable, subject to statutory deductions.

All management employees must purchase and wear the company’s clothing while working; employees submit their receipts and are reimbursed through payroll. Maria has submitted her receipts for $285.00, including taxes, for reimbursement on the next pay. As this clothing is not a uniform, nor is it required for safety purposes, the clothing allowance is taxable, subject to statutory deductions.

1. Determine the amount of Gross Earnings

2. Determine Non-Cash Taxable Benefits

3. Determine Canada Pension Plan (CPP) contribution

4. Determine Employment Insurance (EI) premium

5. Employer’s benefit expense

6. Determine Net Taxable Income

7. Determine Federal tax

8. Determine Provincial tax

9. Total Deductions

10. Net Pay

Answer 1

Salary per pay period                                     = Annual Salary

                                                                                Pay period frequency

                                                                                = $39,000.00

                                                                                           26

                                                                                = $1,500.00

Car allowance per pay period                     = Annual allowance

                                                                                Pay period frequency

                                                                                = $3,250.00

                                                                                         26

                                                                                = $125.00

Step One: Determine Gross Earnings

Gross Earnings                                                  = Earnings + taxable allowances + non-taxable allowances                                                                                               + Cash taxable benefits

                                                                                = $1,500.00 + (125.00 + 285.00) + 0.00 + 0.00

                                                                                = $1,910.00

Step Two: Determine Non-Cash Taxable Benefits

Non-Cash Taxable Benefits                         = $0.00

Step Three: Determine Canada Pension Plan (CPP) Contribution

Gross Pensionable/Taxable Income        = Earnings + taxable allowances + non-taxable benefits

(GPTI)                                                                      + Non-Cash taxable benefits

                                                                                = $1,500.00 + 410.00 + 0.00 + 0.00

                                                                                = $1,910.00

Canada Pension Plan contribution            = (GPTI – pay period exemption) x annual CPP rate

                                                                                = ($1,910.00 – 134.61) x 0.0495

                                                                                = $87.88

Step Four: Determine Employment Insurance (EI) premium

Gross Insurable Earnings (GIE)                   = Earnings + taxable allowances + cash taxable benefits

                                                                                = $1,500.00 + 410.00 + 0.00

                                                                                = $1,910.00

Employment Insurance premium             = GIE x annual non-Quebec EI rate

                                                                                = $1,910.00 x 0.0163

                                                                                = $31.13

Step FIve: Determine Quebec Parental Insurance Plan (QPIP) Premium

Note: Not applicable as Maria is an Alberta Employee

Step Six and seven: Determine federal and provincial income taxes

Net Taxable Income (federal and non-quebec provincial)

                                                                                = GPTI less authorized deductions

· Employee contributions to an RPP

· Contributions to an RRSP

· Union dues

· Deductions for living in a prescribed zone

· CRA authorized deductions

                                                                                = $1,910.00 – 0.00

                                                                                = $1,910.00

Determine federal and provincial income taxes on Net Taxable Income

Using the tax tables fo an Alberta employee, bi-weekly pay period, claim code 2:

Federal tax                                                         = $285.70

Provincial tax                                                     = $134.70

Total tax                                                               = 420.40

Step Eight: Determine Northwest Territories (NT) / Nunavut (NU) Payroll Tax

Note: Not applicable as Maria is not subject to the payroll tax

Step Nine: Total Deductions

Total Deductions                                              = C/QPP contributions

                                                                                + EI premiums

                                                                                + QPIP Premiums

                                                                                + Federal and non-Quebec provincial income taxes

                                                                                + Quebec provincial income tax

                                                                                + NT / NU payroll tax

                                                                                + Other deductions

                                                                                = $87.88 (CPP)

                                                                                   31.13 (EI)

                                                                                + 420.40 (Federal and non-Quebec provincial income taxes)

                                                                                $ 539.41

Step Ten: Net Pay

Net Pay                                                                = Gross Earnings – Total Deductions

                                                                                = $1,910.00

- 539.41

= $1,370.59