[Canada] Types of payroll benefits and deductions

In Wave, it's important to properly enter benefits and deductions that will impact employees' taxable earnings. Proper entry will allow these benefits and deductions to be accurately reflected on the T4 slip.

In this article

Insight on each deduction option is included below:

Dental Insurance and Health Insurance are employee deductions for private dental and health insurance. Employee deductions for private health services and insurance are considered qualifying medical expenses and can be claimed by the employee on their income tax and benefit return.

Reporting guide: for the T4 slip, report these deductions in Box 85.

After-Tax Deduction is an after-tax (post-tax) deduction subtracted from an employee's net wages, as payment or contribution towards a specific plan or service. It does not reduce taxable wages. Examples include life insurance, AD&D, and garnishments.

Union Dues are a before-tax (pre-tax) deduction subtracted from an employee's gross wages. It reduces taxable wages. Use this only if there is an agreement certificate on file that the union will not issue receipts for union dues to employees.

Reporting guide: for the T4 slip, report union dues in Box 44. 

RRSP Contribution is an employee contribution to a Registered Retirement Savings Plan (RRSP) is a before-tax (pre-tax) deduction subtracted from an employee's gross wages. It reduces taxable wages. 

Insight on each benefit option is included below:

When you choose a benefit a description of the item and reporting details are provided. Pay close attention to the type of benefit you select. Some benefits will be paid directly to employees on top of their wages, while others are "non-cash" and are not paid directly to employees on top of their wages.

Bonus (Discretionary) is a bonus that is paid at the sole discretion of an employer. There is no vacation accrual and amounts are taxed per the bonus tax method. Examples include issuing a holiday bonus. Learn more here.

Bonus (Non-Discretionary) is a bonus that is related to work, production or efficiency. Vacation is accrued as per your vacation policy. Amounts are taxed per the bonus tax method. Examples include bonuses for production, attendance or performance in accordance with a contract. Learn more here.

Commission is money paid to an employee who has part of their income based either on sales or another kind of achievement earned at the work premises. It is used as an addition to regular wages and is taxed as bonus income. Vacation is accrued as per your vacation policy. Examples include: Sales commission, contract negotiations.

Reporting guide: for the T4 slip, report this amount in Other Information with Code 42.

Dismissal Pay is wages added to a final pay stub in lieu of sufficient dismissal notice according to labour standards or the terms of an employment contract. 

Regular Allowance is money paid to an employee on top of their regular wages to cover various costs paid directly by the employee. It is taxed as income. Examples include: Cellular phone service, gym membership, moving and relocation expenses, transit passes, tuition fees. Depending on the reason for the allowance, GST/HST may need to be included its value.

Reporting guide: for the T4 slip, report this amount in Other Information with Code 40. 

Regular Benefit is a non-cash taxable benefit for a good or service made available to an employee which has monetary value but is not paid directly to an employee on top of their wages. It is considered taxable and pensionable income. Examples include cellular phone services, child care services, gym memberships and transit passes. Depending on the reason for the benefit, GST/HST may need to be included in the value of the benefit.

Reporting guide: for the T4 slip, report this benefit in Other Information with Code 40.

Severance Pay is payment after retirement in recognition of long service. Examples include: payments for unused sick-leave credits on termination or for the loss of office or employment. This is considered non-eligible retirement/severance, and is taxed using the lump sum method.

Reporting guide: for the T4 slip, report this payment in Box 67.

Supplemental Unemployment Benefit Plan Payment is for Supplemental Unemployment Benefit Plans (SUBP) that are registered with Service Canada, or is unregistered. A SUBP registered with the CRA under Section 145 of the Income Tax Act is not supported. Top-up payments for maternity, parental, compassionate care, or family caregiver benefits do not have to be registered. Supplemental payments made while employees receive EI benefits during a period of temporary stoppage of work, training, illness, injury or quarantine need to be first registered with Service Canada. Learn more here.

To review the benefits and deductions included on previous payrolls navigate to the Reports page through the left-side menu in your Wave account and select the Payroll Benefits and Deductions Report.

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