Employees can make a special request to CRA to reduce their tax liability at source (meaning off their pay cheque). They might do this if they are making regular contributions to their own RRSP, have family support payments, clergy residence or a variety of other reasons. For more information refer to this publication.
What is your responsibility as the employer?
If your employee comes to you with a T1213 form, you do not accept it. This form must be filed with CRA directly. CRA will respond to the employee and they will provide a document stating what the formula is to reduce the tax amounts. The employee MUST present this letter to you in order for you to make these changes. If the employee does not produce the letter your company could be liable for any unpaid tax amounts owing.
The letter will look something like this and will discuss an "F1" value for the new tax calculation:
Adding the reduction to your employee's pay
- Use the manual calculation method in the letter to get the amount to reduce each pay.
*From above: 36,400/number of remaining pay periods in the year to get an amount to reduce each pay.
- **Example 36400/10 remaining pay periods= 3640.00 per period
- Create a deduction rule by going to COMPANY SETTINGS>PAY RULES>DEDUCTIONS
- Add a new rule
- Enable it and make it reduce taxable income and non-cash (if you need to reduce pensionable and insurable income as well then you can check those boxes- always follow the instructions in the letter)
**Note the system does not distinguish federal from provincial taxes when reducing taxable gross. If this is employee pays provincial tax in QC you will need to add this in manually in the pay run or by using an extra tax rule for QC.
- Click Save
- Go to the employee and click the employee to edit
- Go to the DEDUCTIONS under Payroll tab and add the rule and then put in the dollar amount from your calculation in the first step (our example had $3640.00).
- Run payroll as normal.
What will happen when you run payroll is the employee's taxable income will be reduced by the amount in the deduction but no money will be taken off their pay because it is a non-cash deduction.
Always check on the review page by clicking on the employee name and ensuring the taxable income has been reduced by this amount, but not the net pay.
*Pro-Tip: employees need to fill this form out EACH year and provide you with this letter for each new calendar year. Remind them to fill it out in Nov for the upcoming new year