Regulation 100 - Interpretation

Regarding a situation where one corporation is the employer of waiters and a related corporation handles the electronic payment of the tips to those employees, CRA stated:

In the light of the facts submitted, the responsibility for paying the tips of each employee into their bank account by electronic transfer suggests that the tips were under the control of one of the two corporations. Thus, the employer or the person paying the tips on its behalf has an obligation to make the appropriate deductions at source.

A distribution coming out of retirement compensation arrangement (RCA) that was generated in respect of the taxpayer’s employment but paid pursuant to a court order or separation agreement to the taxpayer’s former spouse constituted income to the taxpayer pursuant to s. 56(1)(x) even though received instead by the former spouse (in whose hands it was excluded from income pursuant to s. 56(1)(z)(ii).)

The Directorate found that, as the former spouse was in receipt of “remuneration” as per para. (b.1) of the definition thereof Reg. 100(1) and was thus an “employee” under the Reg. 100(1) definition, for purposes of determining the amount to be withheld under Reg. 102 the “employee” was the former spouse, and that the amount withheld was to be remitted on account of the former spouse’s income tax for the year.

The Directorate recognized that this generally would produce a “misalignment,” i.e., any income tax withheld on the RCA Payment could be claimed upon the filing of the former spouse’s income tax return for the year and, conversely, the taxpayer would have no amount to report on account of the income tax withheld for the year in respect of the RCA Payment inclusion to the taxpayer.

Under Reg. 200(1), a T4A-RCA Form was required to be issued to the former spouse in respect of the RCA Payment.

A Canadian resident manufacturing corporation ("Canco") pays the non-resident employees ("Dealer Employees"), of non-resident dealers selling its products outside Canada, incentive payments ("Incentive Payments") for each warranty registered on Canco's products. Are the Incentive Payments subject to withholding or to a reporting obligation? After referring to the commission branch of the "remuneration" definition, CRA stated:

Whether Canco and the Dealer Employees have an employer/employee relationship, as developed through Canadian common law, is a question of fact. Provided no such relationship exists, the Incentive Payment would not meet this definition and Regulations 102 and 103 should not apply to require Canco to deduct or withhold any amount from the Incentive Payments… .

Notwithstanding that no withholding tax is required… where there is no employer/employee relationship…Canco would still be required to file an information return (T4A…)… .

Where a lawyer, who is a member of a professional partnership, is a director of a corporation, the director's fees paid to him will not be subject to source deductions if it is the partnership that has earned those amounts.

Teachers accrue a salary entitlement over the school year but are paid on an even instalment basis over the full 12 months that include their months not teaching. However, when a teacher goes on maternity leave, she receives a catch-up payment to bring her pay up to the total accrued entitlement to that point. CRA stated that such catch-up payment “represents payment of salary or wages that must be deducted at source in the usual manner.”

Reimbursements of the legal fees incurred in a wrongful dismissal action are not "remuneration".

The trustees of a REIT (who in that regard were not acting in the course of a business) received fees from the REIT equaling $20,000 per year, plus $1,000 for each meeting attended in person (or $500 if attended by telephone) plus reimbursements for out-of-pocket expenses incurred in the performance of their duties as trustees. CRA concluded that such fees were from an “office,” and that:

[T]he REIT would therefore be required to withhold tax from the fees paid to its Trustees by virtue of paragraph 153(1)(a) and to issue a T4 information slip to each of them in that regard.

In finding that damages received by a union regarding unpaid wages of the employer were subject to source deductions when paid by it to the employee, if it received the damages as the employee’s agent, CCRA indicated that the courts have established that s. 153(1)(a) does not require an employer-employee relationship between the payer and the payee.

After the completion of bankruptcy proceedings for a corporation, the directors were sued for unpaid employee remuneration and agreed to pay amounts in settlement of such claims. In finding that the administrator of the settlement fund was required to withhold pursuant to s. 153(1)(a) on the portion not referable to interest or recovery of expenses, the Directorate stated:

[C]laiming payment of wages and other remuneration from the directors of a bankrupt corporation does not diminish the connectedness to the employment and it cannot be concluded that they come from another source. …

It is … not required that the services be rendered to the payer, either the directors of the corporation (the employer) or the administrator of the settlement fund.

A plan under which sick leave benefits to which an employee is entitled under the terms of an employment contract or collective agreement are paid to her through an employee benefit trust will be considered to give rise to salary or wages and, therefore, will be subject to the usual deductions for UIC and CPP.

On his retirement in 2017, the beneficiary (X) of a retirement compensation arrangement (RCA) set up by his employer was entitled to receive a $50,000 retiring allowance from the RCA. In Scenario 1, his RRSP deduction limit for his 2017 taxation year as confirmed by his notice of assessment for his 2016 taxation year, was $75,000, and in Scenario 2, such confirmed deduction limit was $30,000 and the eligible portion of the retiring allowance qualifying for the s. 60(j.1) deduction was $20,000.

After noting that Reg. 100(3)(c) provided that remuneration paid by an employer is reduced where a portion of such amount is paid as a premium under an RRSP to the extent that the employer believes on reasonable grounds that the premium is deductible under ss. 60(j.1), 146(5) or (5.1) in computing the employee’s income for that taxation year, in which the payment of remuneration is made, CRA found that there should be no withholding obligation on the custodian of the RCA in either Scenario on payment of the retiring allowance to the RRSP, stating:

The facts establish that the entire amount from the RCA was paid to X's RRSP, and that the Custodian had reasonable grounds to believe that the entire amount ($50,000) was deductible under subsection 146(5) (Scenario 1) or that part of the amount ($20,000) was deductible under paragraph 60(j.1) and that the other part of the amount ($30,000) was deductible under subsection 146(5) (Scenario 2).

Regarding satisfaction of the “believes on reasonable grounds” requirement where there is a direct transfer of an amount from a retirement compensation arrangement (RCA) to a trust governed by a registered retirement savings plan (RRSP), CRA stated:

Generally, we consider a confirmation by the RRSP annuitant that the contribution is deductible for the year, or a copy of the portion of the annuitant's Notice of Assessment that shows the RRSP deduction limit for the year, to be reasonable.

In response to a query as to whether the correspondent’s notice of assessment must be provided to the employer so that it can pay the retiring allowance amount into the individual’s RRSP without deductions at source – and whether that amount can be paid into a spousal RRSP or as a repayment of the individual’s home buyers' plan ("HBP"), CRA stated:

[T]he employer is not required to withhold tax on the amount of the retiring allowance that it pays directly to an RRSP if the employer has reasonable grounds to believe that the premium is deductible under paragraph 60(j.1) or subsection 146(5) or (5.1) in computing the employee's income for the taxation year in which the retiring allowance is paid.

Generally, we will consider confirmation from the employee that the contribution is deductible for the year, or a copy of the portion of the employee's Notice of Assessment that shows the employee's RRSP deduction limit, to be a reasonable basis. However, confirmation of that RRSP deduction limit is not required from the employee for the portion of the retiring allowance that is eligible for deduction under paragraph 60(j.1).

Subsection 146.01(3) provides that an individual may designate, for a taxation year, an amount contributed to an RRSP under which the individual is the annuitant as a non-deductible repayment by virtue of the HBP. For that purpose, the designated amount cannot exceed the eligible amounts received by the individual minus the total of amounts designated pursuant to subsection 146.01(3) for prior years and amounts included in income pursuant to subsections 146.01(4) for prior years (the "HBP balance").

Consequently, an employer could make a contribution to the employee's RRSP for the portion of the retiring allowance that is not deductible under paragraph 60(j.1) and subsections 146(5) and (5.1) to repay all or part of the HBP balance. However, the employer will have to withhold tax on that portion of the retiring allowance before making such a contribution to the RRSP since the contributions that will be designated as repayment of the HBP balance are not deductible.

Mr. Y, pre-pandemic, had reported to work at the PEI office of a national company and then, with the pandemic, commenced to work remotely from his PEI home (without authority to contract for the company) and (as before) is paid by the payroll department in the company’s Ontario office. CRA indicated that, pursuant to Reg. 100(4)(a) - which deems an employee, who is not required to report for work at any establishment of the employer, to report for work at the establishment from which the employee’s salary and wages are paid – Mr. Y would be treated as if he reported to work in Ontario, so that source deductions would be made at the Ontario rates.