17 February 1995 Ministerial Letter 5M11338 - SOURCE DEDUCTION REQUIREMENTS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether TD1 can be used claim that employment income will be exempt under the Indian Act and remove employer's responsibility to remit source deductions

Position:

Potential non-taxability of income does not remove requirement for source deductions

Reasons:

Personal credits are considered for TD1 purposes but not statutory exemptions. Waivers are available in hardship cases.

ADM'S OFFICE
RETURN TO 15TH FLOOR, ALBION TOWERS
AUTHOR
SUBJECT OR CORPORATE FILE

February 17, 1995

XXXXXXXXXX

Dear XXXXXXXXXX:

Further to my letter of February 6, 1995, I am writing concerning your client, the XXXXXXXXXX.

There is no requirement to withhold source deductions in situations where an individual's personal credits exceed the employment income or where the Department has issued a waiver. Individual waivers are issued under the provision of subsection 153(1.1) of the Act in situations where there is a known reduction in tax available to the individual. In addition, the Department has issued general waivers in respect of identifiable groups. There is no intention to change this practice.

As you know, it is the Department's position that some of XXXXXXXXXX employees will not fit within the guidelines for exemption from income tax on their employment income. Therefore, XXXXXXXXXX is required to withhold and remit source deductions for these employees where the employment income will exceed an employee's personal credits. Knowingly accepting an incorrectly completed TD1 will not relieve an employer from the requirement to withhold.

Given the withholding requirements, the trust fund proposal we discussed is not a viable alternative. Of course, should any individual be successful in the appeal of an assessment, the refund of the tax involved will bear interest at the prescribed rate.

Please be assured that you will have our co-operation in expeditiously handling any objections or appeals.

Yours sincerely,

Denis Lefebvre
Assistant Deputy Minister
Policy and Legislation Branch

Bryan W. Dath
950-2089

February 17, 1995
WITHHOLDING REQUIREMENTS

•Subsection 153(1) of the Act requires the payer of certain amounts, including salary wages or other remuneration, to withhold and remit amounts as prescribed.

.Section 153(1.1) provides the Minister with discretion to waive withholding requirements when they would create an undue hardship.

•Part I of the Regulations prescribes the rules.

•Subsection 227(2) of the Act requires the employee to file a "return in prescribed form" (TD1) with the payer of the employment income.

•Subsection 107(1) of the Regulations stipulates that the TD1 is to be filed when the employee starts to work for the employer and that a new TD1 is to be filed with the employer "within 7 days of a change that may reasonably be expected to result in a change in the employee's personal credits for the year" (emphasis ours).

Subsection 100(1) of the Regulations defines personal credits. It does not include amounts exempted from tax.

•Subsection 104(1) of the Regulations says that no deductions at source are to be made if the TD1 shows that the employment income is less than the "claim amount" reported on the return (TD1) that is referred to in subsection 107(1). The term "claim amount" is not defined in the Act or Regulations.

•Subsection 248(1) of the Act defines the term "prescribed" to mean "in the case of a form, the information to be given on a form or the manner of filing a form, authorized by the Minister"

Although subsection 227(2) of the Act does not stipulate what amounts can be claimed to reduce the employment income, it is reasonable to assume that, since Regulation 107(1) refers to the employee's personal credits, it is only these credits that can be so applied to determine the "claim amount" referred to in Regulation 104(1). Also, the fact that the TD1 is a "prescribed form" as defined, only the information required in the form could establish the basis for the claim.

The Employer's Guide to Payroll Deductions states that "It is a serious offence to knowingly accept a TD1 form that contains false or deceptive statements."

.Section 239 deals with offences for making, or participating in, false or deceptive statements in a return.

Summary

Employees are required to file a TD1 with their employer and the TD1 may reflect their personal credits and not other statutory exemptions. Withholding is not required if personal credits exceed anticipated employment income. The employee and employer are both subject to penalty if the TD1 is knowingly falsified.

Source Deductions Division

At this time, we have not been able to determine any national policy with regard to the waiver of withholding requirements when exempt income is involved.

Prepared by:

Paul Fuoco &
Bryan Dath
February 1995