CAUBO SASKATOON - JUNE 2004 Headquarters Vicky Adams Lorraine Maisonneuve CPP/EI and Trust Accounts Division CPP/EI Division CPP/EI and Trust Accounts Division Responsibilities under the EI Legislation HRSD Under the EI Act, Human Resources and Skills Development (HRSD) is responsible for: Legislative provisions of the EI Act and EI Regulations that establish insurable employment. Matters related to the determination (qualification for benefits), entitlement (amount to be paid), and payment of benefits. Administering most of the EI Legislation. CPP/EI and Trust Accounts Division Responsibilities under the EI Legislation Canada Revenue Agency (CRA) Collect all EI premiums. Determine the insurability of an employment, the earnings and the hours. Develop and maintain the EI Insurable Earnings and Collection of Premium Regulations under EI Legislation. CPP/EI and Trust Accounts Division Responsibilities under the EI Legislation Canada Revenue Agency (cont’d) The CRA has similar responsibilities under the Canada Pension Plan with respect to: Collection CPP contributions. Determining the pensionability of an employment and the earnings. In order to make these determinations, we conduct CPP/EI Rulings. CPP/EI and Trust Accounts Division What is a CPP/EI Ruling? A Ruling is a formal determination of: Whether a person is employed or self-employed. Whether an employment is pensionable and/or insurable. Whether earnings are pensionable and/or insurable. CPP/EI are and Trust Accounts Division Whether the hours insurable. How CRA determines whether a worker is an employee or independent contractor CPP/EI and Trust Accounts Division The Four in One Test In Canada, with the exception of the province of Quebec which has the Civil Code, Common Law is applicable. Over time, the Courts have established tests that could be used to determine a workers employment status. The test that is currently in use by the Courts and which the CRA also uses when making a ruling, is called the four in one test. CPP/EI and Trust Accounts Division The Four in One Test The four in one test was outlined in the Federal Court of Appeal decision of Wiebe Door Services Ltd. v. The Minister of National Revenue [1986] 3 F.C. 553 and was confirmed in the Supreme Court of Canada decision in 67122 Ontario Ltd. v Sagaz Industries Canada Inc (2001) SCR 983. CPP/EI and Trust Accounts Division The Four in One Test This test consists of looking at four elements: 1. The right of control; 2. Ownership of tools and equipment; 3. Chance of profit and risk of loss; and 4. Integration. Intent should only be used when other factors are inconclusive. CPP/EI and Trust Accounts Division The Four in One Test What is important to understand about the four in one test is that it is the entire scheme of operations between the worker and payer that must be considered. There is no one factor that determines whether or not a person is an employee or an independent contractor; all factors are relevant. CPP/EI and Trust Accounts Division The Four in One Test Under the Civil Code in Quebec, the test of subordination is used to determine a worker’s employment status. There is very little difference between the application of these two tests and the result will be the same. For this reason, and to ensure consistency in approach , the CRA uses the four in one test to determine a worker’s employment status. CPP/EI and Trust Accounts Division Control CPP/EI and Trust Accounts Division The Right of Control In an employer-employee relationship, the employer has the right to direct and control the worker in the way the work is done by telling the worker when, where and how the work will be done. It is not necessary for the employer to exercise this control as long as it can be determined that the employer has the right to exercise the control, if and when the employer wishes to do so. However, the more control an employer actually exercises over a worker, the stronger the case will be that the worker is an employee. CPP/EI and Trust Accounts Division Indicators Benefits Remuneration Worker’s compensation Wages, salary, hourly rate Group, accident, health & dental Piece work plans, pension Commissions, etc Collective Agreement Time Places Full or Part time Payer’s office Continuous Worker’s residence Deadlines On the road Priorities Responsibilities Autonomy Selection & dismissal of Periodic reporting, oral or workers written Establishing work methods Personal services required Safety measures in the work Prescribed work method place Instructions Facilities Orders Materials Directives CPP/EI and Trust Accounts Division Offices Training Ownership of tools and equipment CPP/EI and Trust Accounts Division Ownership of tools and equipment The fact that a worker uses his or her own tools or equipment is not sufficient to say the worker is an independent contractor. In some occupations it is customary for the worker to provide his or her own tools. CPP/EI and Trust Accounts Division Chance of profit//Risk of loss CPP/EI and Trust Accounts Division PROFIT LOSS Profit is defined as the excess of revenues over expenditures. The chance of profit is associated with one carrying on a business. Profit should not be confused with remuneration or increase revenue. For instance, working overtime. A loss is defined as an excess of expenditures over revenues. The chance of incurring a loss is also associated with one carrying on a business. An employee generally does not incur expenses, nor does an employee bear the risk of incurring a loss CPP/EI and Trust Accounts Division Chance of Profit – Risk of Loss An independent contractor assumes all risk for loss that results from events that occur during the course of the work and that were not (or could not have been) foreseen when the contract was negotiated. If, on the other hand, the work is completed sooner or more easily than expected, the independent contractor will have a greater profit. CPP/EI and Trust Accounts Division Integration CPP/EI and Trust Accounts Division Integration An employee is employed as part of a business, whereas, an independent contractor is an accessory to the business (even though the work is done for the business). Another way of looking at this test is asking the question: Whose business is it? Normally the more economically dependent a worker is on the employer, the more likely the worker is an employee. CPP/EI and Trust Accounts Division Corporations In some instances a worker may set up a corporation (A) which in turn does work for another corporation (B). It could even happen that the worker used to be an employee of (B). In general, as long as the worker has properly set up (A), has resigned from any previous employment contract with (B), and the contract is between the two corporations, that worker would no longer be an employee of (B). However, the worker would normally become an employee of (A). CPP/EI and Trust Accounts Division Recent Court Decisions The Supreme Court of Canada decision in 671122 Ontario Ltd. v. Sagaz Industries Canada Inc. [2001] SCJ 61. confirmed the use of the four in one test. It bears repeating that the factors constitute a nonexhaustive list, and there is no set formula as to their application. The relative weight of each will depend on the particular facts and circumstances of the case.” CPP/EI and Trust Accounts Division Recent Court Decisions More recently, the Federal Court of Appeal decision in Lawrence Wolf v. The Minister of National Revenue [2002] FCJ 375 also confirmed the use of the four in one test. That decision also confirmed another important point; that the terms of the written contract between the worker and the payer will only be given weight if they properly reflect the relationship between the parties. Intent only to be used when other factors are inclusive. CPP/EI and Trust Accounts Division Contract for Services A contract for service is an arrangement whereby one party agrees to perform specific services for another party CPP/EI and Trust Accounts Division Teachers CPP/EI and Trust Accounts Division Definitions Without limiting the scope of this definition, by “teacher”, we mean: Any person hired to teach by a board, commission, school, college or university, who is recognized in this capacity by the provincial or territorial ministry of education. It can apply to professor, educator, lecturer and instructor. For the purpose of this presentation, they will be referred to as “teachers”. Teaching staff at recognized educational institutions in Canada are generally hired under a contract of service. CPP/EI and Trust Accounts Division Multiple contracts of employment (EI and CPP) By “multiple employment” we mean a worker who performs different services for one and the same employer under separate contracts. This situation is treated the same way for Employment Insurance and the Canada Pension Plan. In these circumstances, it must be clearly understood that it is the employment of the person, not the person himself or herself that is considered as being covered by both systems (EI and CPP). As with establishing a contract of service, the facts surrounding the employment (conditions of employment) must be taken into account, not the person performing it. CPP/EI and Trust Accounts Division Multiple contracts of employment (EI and CPP) Each contract of employment must be examined separately when evaluating the application of the Employment Insurance and Canada Pension Plan regulations. One way to determine whether they are separate contracts or only one contract of employment when there is no written contract between the parties is to decide whether the person who performs the services, the teacher for example, would lose “his/her jobs” if his/her performance was deemed unsatisfactory on one of these contracts. CPP/EI and Trust Accounts Division Teacher exchange program (EI and CPP) Provision is made in the legislation governing both systems for exclusions from Employment Insurance and the CPP under certain circumstances in order to prevent both employers from being required to make contributions on behalf of one individual for one job CPP/EI and Trust Accounts Division Teacher exchange program (EI and CPP) Employment Insurance: Insurable employment will not include: i) employment of a foreign teacher under an exchange program who performs services in Canada if the employment is not remunerated by an employer that is resident in Canada; ii) employment of a Canadian teacher that is remunerated by a foreign employer for services performed outside Canada. Reference: Paragraph 5(2)(f) of the EIA and Section 5 of the EI Regulations CPP/EI and Trust Accounts Division Teacher exchange program (EI and CPP) Canada Pension Plan: Employment that will not be covered by the CPP: i) employment of a teacher under an exchange program with a country other than Canada. Reference: Paragraph 6(2)(c) of the CPP CPP/EI and Trust Accounts Division Educational speaker or Guest Lecturer Some educational institutions retain the services of a person to give one or more lectures on a topic this person specializes in. The rate of pay for this type of service and the duration of the lecture is generally fixed. Most of these speakers ask to be treated as self-employed workers for various reasons. We have identified three types of speakers: • Self-employed workers • Employees • Part-time speakers CPP/EI and Trust Accounts Division Self-employed workers Speakers who give only one or two lectures for an employer would not normally be considered to be under a contrract of service. CPP/EI and Trust Accounts Division Employees However, we will consider that an employer/employee relationship (contract of service) exists if: i) the specialist is recruited to replace a regular teaching staff member and is subject to the same conditions of employment as this member; or ii)the establishment has created a permanent position for this purpose to be occupied by guest speakers on a parttime basis. CPP/EI and Trust Accounts Division Part-Time Speaker A part-time speaker is not deemed to run a business consisting in giving speeches. He/she is an integral part of the institution’s activities, and in this capacity, finds himself or herself in the same situation as regular employees of this institution. Having a professional or specialist status does not mean that the person cannot be an employee. The facts in the particular case determine whether an employer/employee relationship exists, not a particular status. CPP/EI and Trust Accounts Division Research assistants At the university level, we often find students who do graduate or post-graduate research and for which they receive money from bursaries or grants. These students are generally called “research assistants”. Since universities manage these research programs in different ways, the four in one test must be examined in each case. Reference IT Bulletin 75R3 CPP/EI and Trust Accounts Division Hours In principle, in the field of teaching, the employer knows the exact number of hours of teaching and the number of hours a week or session the teacher must be available if applicable. The number of hours actually worked will be the issue of most disputes concerning the Employment Insurance regulations. We deal with the issue of hours as follows: CPP/EI and Trust Accounts Division Hours When provision is made in a collective agreement or contract of employment only for the hours of teaching time paid and not the hours paid but associated with teaching duties (course preparation, marking tests, meetings and committees, etc..) or with the teacher’s availability, an agreement between the employer and the teachers concerned on the estimated number of hours worked will be accepted insofar as this number of hours is reasonable under the circumstances. CPP/EI and Trust Accounts Division Hours When an agreement between an employer and its teachers concerning an estimated number of hours worked and remunerated is not considered reasonable by HRSD, the latter may ask the Minister of National Revenue for a ruling. CRA will then proceed with an evaluation of the conditions of employment and will establish the number of hours worked and paid by taking into account the number of hours normally worked to perform similar duties, under the circumstances and according to the facts presented by the parties involved. CPP/EI and Trust Accounts Division Hours In situations in which the employer cannot establish with certainty the exact number of hours worked by a teacher for a given period of work and no provision is made in an agreement between the parties for an evaluation mechanism, or when the teacher objects to the hours indicated on the Record of Employment, the parties involved or HRSD could ask the Minister of National Revenue for a ruling, as mentioned above under reasonableness CPP/EI and Trust Accounts Division CPP/EI Web address Following is the address to the CPP/EI Explained http://www.craarc.gc.ca/tax/business/topics/payroll/ruling-e.html and the address to the CPP/EI guide and forms is: http://www.ccraadrc.gc.ca/formspubs/topics/cpp_ei_rulings-e.html CPP/EI and Trust Accounts Division TRUST ACCOUNTS DIVISION Employment Benefits CPP/EI and Trust Accounts Division Responsibility Department of Finance is responsible for fiscal policy and income tax legislation. CCRA is responsible for administering the Income Tax Act. The two liaise closely on income tax legislation. CPP/EI and Trust Accounts Division Policy and Technical Services Develop and communicate national policies and procedures for payroll deductions and taxable benefits. Provide technical support to field offices and external clients. Administer the taxable benefits provisions. CPP/EI and Trust Accounts Division What Is a Benefit? When an employee receives : a benefit, a gift, or an award from an employer, he is in receipt of a benefit that is either taxable or non-taxable. CPP/EI and Trust Accounts Division Defining Benefits Unless specifically excluded by the Act: the value of board, lodging and other benefits of any kind received or enjoyed; and all amounts received as an allowance for personal and living expenses must be included in income. CPP/EI and Trust Accounts Division Automobile Benefit Taxable benefit occurs when an employer provides an automobile and it’s used for personal use such as : vacation travel; driving for personal business; or travel between home and the work place. CPP/EI and Trust Accounts Division Personal Use Transportation between home and the regular work place. Exceptions travel directly between home and a point of call other than the regular work place (salesman); for security, employer provides transportation from a pick-up point to job location; or travel after overtime under certain conditions. CPP/EI and Trust Accounts Division Calculation of Benefit Is the vehicle an “automobile” as defined in the Act? What is the cost of running the automobile (operating cost)? How many days was the “automobile” made available to the employee (standby charge)? Is there a reduced standby charge? CPP/EI and Trust Accounts Division Reduced Standby Charge For 2003 and later tax years The standby charge can be reduced if: personal driving does not exceed 1,667 km a month (20,004 km per year); and primarily – more than 50% – of the driving is for business purposes. CPP/EI and Trust Accounts Division Records to Keep Employee and employer should keep records of automobile use. Records should include: – Total business kms driven; and – Total personal kms driven. CPP/EI and Trust Accounts Division Automobile Allowance An allowance given to the employee for the use of his own vehicle. Not taxable if the allowance is reasonable: it’s based solely on the number of business kms driven; the rate per km is reasonable (per Reg. 7306); and the employee is not reimbursed for expenses. A flat-rate allowance is taxable. CPP/EI and Trust Accounts Division Scholarships/Fellowships/ Bursaries/Prizes The Act [56(1)(n)] includes in income the total of all amounts received for: Scholarships; Fellowships; Bursaries; or Prizes for achievement in a field of endeavor ordinarily carried on by the employee (other than prescribed prize). May be subject to a $3,000 exemption under 56(3). CPP/EI and Trust Accounts Division Scholarships/Bursaries Amounts paid to students to: enable them to pursue their education; or assist them in proceeding towards a degree, diploma, or other certificate of graduation. May apply to any field of study, academic discipline, professional program, trade or skill. Includes allowances for specific educational costs, i.e. lodging, personal travel, tools, books etc. CPP/EI and Trust Accounts Division Scholarships/Fellowships/ Bursaries/Prizes Does not apply [not income under 56(1)(n)] to: amounts received in the course of business or to amounts received by virtue of an office or employment; grants received in a year to enable the individual to carry on research or any similar work [income per 56(1)(o)]; or student loans, training allowances [income per 56(1)(r)]. CPP/EI and Trust Accounts Division Fellowships Amounts paid to a graduate student to enable them to advance their education. Generally awarded for doctoral studies and post-doctoral work. Normally included under 56(1)(n) if awarded to further the education and training of the recipient, but can also be a grant under 56(1)(o) if primary purpose is to carry out research for its own sake. CPP/EI and Trust Accounts Division Student Assistantships A student may be in receipt of a fellowship AND employment income when he agrees to do some teaching, marking of papers etc. The two parts are treated differently for income tax purposes: – the amount received as fellowship is income under 56(1)(n) and the employment income is taxed under 5(1). CPP/EI and Trust Accounts Division Student Loans A genuine loan to assist in financing a student’s education is not income to the student. Provisions must be made for repayment within a reasonable time. CPP/EI and Trust Accounts Division Prizes The recipient must be rewarded for success in an area in which the recipient regularly applies effort. Paid in recognition of a genuine accomplishment in a challenging area, whether it be academic, vocational or technical nature. CPP/EI and Trust Accounts Division Paid Tuition Fess for Dependant May be considered as scholarship income [56(1)n)] to the recipient if: – the payment is made as part of the plan to help a certain number of children who are selected on the basis of scholastic record or other achievements or qualities by a board or committee or persons not connected to the employer. CPP/EI and Trust Accounts Division Paid Tuition Fess for Dependant In other cases, amounts paid to assist in the education of dependants may be income to the parent/employee pursuant to 6(1)(a). CPP/EI and Trust Accounts Division Remote Location, Special Work Site Not taxable per 6(6): when allowances for board and lodging and transportation are provided for employment at a “remote work location” or a “special work site” when certain conditions are met. CPP/EI and Trust Accounts Division Administrative Positions Administratively, CCRA does not consider certain benefits to be taxable, i.e. subsidized meals , certain moving expenses, uniforms and special clothing… We conduct periodic reviews of our administrative positions. Result: modernized our position on the taxation of employer provided gifts & awards for the year 2001 & following. CPP/EI and Trust Accounts Division Gifts/Awards Employers can give 2 non-cash gifts (for a special personal occasion) and 2 non-cash awards (in recognition of specific employment achievements) per year. The cost of the 2 gifts cannot be more than $500 in total. The cost of the 2 awards cannot be more than $500 in total. CPP/EI and Trust Accounts Division Gifts and Awards cont. Example: employee receives: 1 birthday gift – cost $200 1 Christmas gift – cost $300 1 long service award – cost $400 1employee of the year award - $100 The employee will not be in receipt of a taxable benefit as the total cost does not exceed $500 for the 2 gifts and $500 for the 2 awards . CPP/EI and Trust Accounts Division Gifts and Awards cont. When the award or gift is taxable, the FMV of the item (not the cost) is included in income EX: the cost of the gift is $600 the FMV is $700 the FMV of $700 is included in income. The $500 threshold is not an exemption. CPP/EI and Trust Accounts Division Gifts and Awards cont. If the cost goes beyond the $500 limit or the number goes beyond 2 items, the assumption is that the gifts or awards form part of the employee’s remuneration package. CPP/EI and Trust Accounts Division Exclusions The policy does not apply to gifts/awards that are : cash or near-cash (easily converted to cash) ; points that can be redeemed for air travel or other rewards; reimbursed by the employer; not given by reason of employment; a form of disguised remuneration; CPP/EI and Trust Accounts Division Exclusions cont. incentive rewards: team & moral building, hospitality functions, etc: prizes related to sales or other work performance. giveaway contest in which a bonus is divided; among the employees as prizes following a draw; prizes won in a game of chance; and social events. CPP/EI and Trust Accounts Division Social Events Not taxable: when they are available to all employees; and they cost $100 per person or less, plus reasonable ancillary costs. CPP/EI and Trust Accounts Division Employer Paid Education Cost Not taxable: Where the primary beneficiary of the payment is the employer. Employees are not entitled to claim the non-refundable tuition credit nor the education amount on their return for the non-taxable amount. CPP/EI and Trust Accounts Division Employer Paid Education Cost Guidelines: Specific employment-related training: courses to upgrade employment-related skills - not taxable. General employment-related training: other business-related courses not directly related to the employer’s business if taken primarily for the employer’s benefit - not taxable. Personal related courses: not related to the employer’s business and are mainly the employee’s benefit - taxable. CPP/EI and Trust Accounts Division Employer Paid Education Cost Taxable: Tuition fees, books, supplies paid or reimbursed for a related person to the employee is taxable to the employee. CPP/EI and Trust Accounts Division Recreational Facilities and Club Dues Not taxable when the employer: provides or pays for recreational facilities AND it’s available to all employees; or pays the club memberships AND it’s principally for the employer’s advantage rather than the employee’s. CPP/EI and Trust Accounts Division Meal Allowances Not taxable: overtime meal allowances provided when: an employee works three or more hours of overtime; the amount is reasonable; and the overtime is infrequent or occasional. CPP/EI and Trust Accounts Division Convention/Conference Expenses Not taxable when: employees are required to attend the convention/conference as part of their duties; and the main purpose is for business. If the trip is extended to provide for a paid holiday, there is a taxable benefit equal to the cost borne by the employer for the extension. CPP/EI and Trust Accounts Division Convention/Conference Expenses cont Spouse’s paid expenses are a benefit to the employee, unless the spouse is there at the request of the employer and is mostly engaged in business. There should be conclusive evidence of this. The benefit may be reduced accordingly. CPP/EI and Trust Accounts Division Convention/Conference Expenses cont Main purpose: business or social - identified and measured with some reasonableness. Factors to consider: »duration; »time assigned to business programs; »time assigned to social events. CPP/EI and Trust Accounts Division Romeril v. The Queen Informal Procedure of the Tax Court of Canada ( 97-3314(IT)I. The court found that the spouse’s attendance was for business-related reasons - principal purpose of trip was business. Judgement is not treated as a precedent does not apply to other taxpayers. Case-by-case basis. CPP/EI and Trust Accounts Division Moving Expenses Not taxable: Reimbursed moving expenses that are eligible deductions (s. 62 of the Act); Non-accountable allowance up to $650 for incidental expenses; and Certain home relocation loans. CPP/EI and Trust Accounts Division Parking Not taxable: When the FMV cannot be determined. Examples: – A business operates from a shopping centre/industrial park where parking is available to employees and non-employees. – An employer provides “scramble parking”. Provided to an employee who has a disability. CPP/EI and Trust Accounts Division Parking Not taxable: When employees regularly have to use their own vehicles to perform their duties. Example of factors: Number of days the automobile is required to be used for employment purposes. Nature of the employment contract. Who the primary beneficiary is. CPP/EI and Trust Accounts Division Parking Primary beneficiary: Is it a benefit to the employer rather than the employee? Does the benefit restore the employee to the economic situation they would have been in if they were not engaged in business on their employer’s behalf? CPP/EI and Trust Accounts Division Paid Professional Membership Not taxable: When an employer pays professional membership fees because of the condition of employment. When the employer is the primary beneficiary of the payment. CPP/EI and Trust Accounts Division Internet/Cell Phones/Computers Personal use of any equipment, services etc is a taxable benefit. Not a benefit if the primary beneficiary is the employer or if the program is consistent with the guidelines in the Income Tax Technical News no. 13 on employmentrelated training. CPP/EI and Trust Accounts Division Reimbursements Reimbursements may not be taxable if they are for: reasonable out-of pocket employmentrelated expenses supported by vouchers; or travel expenses or reasonable travel allowances when the employee is traveling away from the municipality for work. CPP/EI and Trust Accounts Division Other Non Taxable Benefits Certain employer provided child care expenses. Employer’s contribution to a Private Health Service Plan. Employer provided distinctive uniform or special protective clothing. CPP/EI and Trust Accounts Division Trust Account’s Web Address The address to the payroll page is: http://www.ccraadrc.gc.ca/tax/business/topics/payroll/menue.html The address to payroll guides and forms is: http://www.ccraadrc.gc.ca/tax/formspubs/menu-e.html CPP/EI and Trust Accounts Division References Employers’ Guide Taxable Benefits -T4130 Employers’ Guide Payroll Deductions (Basic Information) -T4001 IT-470 Employees’ Fringe Benefits (Consolidated) IT-63R5 Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer after 1992 IT-522R Vehicle, Travel and Sales Expenses of Employees CPP/EI and Trust Accounts Division References IT-91R4 Employment at Special Work Sites or Remote Work Locations IT-148R3 Recreational Properties and Club Dues IT-131R2 Convention Expenses IT-178R3 Moving Expenses IT-75R3 Scholarships, fellowships, bursaries, prizes, and research grants Various Income Tax Technical News CPP/EI and Trust Accounts Division THANK YOU CPP/EI and Trust Accounts Division