Reducing remuneration subject to income tax
Certain amounts that you deduct from the remuneration you pay an employee, as well as other authorized or claimed amounts, can reduce the amount of remuneration from which you deduct tax for the pay period. Reduce the remuneration by the following amounts before you calculate tax:
- a deduction for living in a prescribed zone;
- an amount that a tax services office has authorized (see Letter of authority);
- employee's contributions to a registered pension plan (RPP). For details on how to determine the exact amount of these contributions, go to Contributions to a registered pension plan (RPP);
- union dues;
The Quebec provincial rules for reducing remuneration for union dues are different—see the Guide TP-1015.G-V, Guide for Employers: Source Deductions and Contributions.
- employee's contributions to a retirement compensation arrangement (RCA) or certain pension plans. For more information on determining whether an employee can deduct contributions to an RCA, see Guide T4041, Retirement Compensation Arrangements Guide;
- employee's and employer's contributions to a registered retirement savings plan (RRSP) provided you have reasonable grounds to believe the employee can deduct the contribution for the year. For more information, go to RRSP contributions you withhold from remuneration;
- employee's contributions to a pooled registered pension plan (PRPP), or a similar provincial pension plan, as long as the plan is registered with the Minister of National Revenue and you have reasonable grounds to believe the employee can deduct the contributions for the year. For more information, go to The Pooled Registered Pension Plan (PRPP).
Do not subtract CPP contributions and EI premiums to determine the remuneration that requires tax deductions.
David is paid weekly (52 pay periods per year). The remuneration that requires tax deductions will be his gross weekly remuneration minus the weekly deductions.
Step 1: Calculate the gross weekly remuneration
His gross weekly remuneration are equal to his basic weekly salary of $500 plus his taxable benefits of $50.00. The total is $550.00.
Step 2: Calculate the weekly deductions
The weekly deductions are equal to his RPP contributions of $25.00 plus union dues deductions of $5.50 plus his deduction for living in a prescribed zone of $77.00 ($11.00 per day × 7 days). The total weekly deductions amount is $107.50.
Step 3: Calculate the weekly net remuneration on which you have to deduct income tax
Subtract the weekly deductions amount you calculated in step 2 from the gross weekly remuneration in step 1. The result will be the net weekly remuneration on which you have to deduct income tax.
The gross weekly remuneration of $550 minus the total weekly deductions of $107.50 equals the remuneration that requires tax deductions at source of $442.50.
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