Canadian Payroll 2021 Year End Update

In all the 2020 excitement, I realized I never posted about the 2020 Year End update. I think 2020 for me was all about getting through day to day things and I just forgot about this. Anyway, I’m back to blogging semi-regularly again and it’s that time of year again.

This is a HEADS UP for now, primarily aimed at Dynamics GP Canadian Payroll users. I will update this post as more information is known and with the links once updates are ready.

The CRA (Canada Revenue Agency) *just* released their T4127 guide for January 1, 2022 (I got the auto-email December 14th at 8:55am ET). This is something Microsoft (& other software vendors) typically get in late November to allow them adequate time to update their software for the new year tax changes.

Update 2: December 21, 2021 - Microsoft is targeting a release for this on the afternoon of Wed Dec 22nd.

What are the tax changes this year?

The following is a high level summary of what I can see in the guide:

1. There are no Federal Income Tax rate changes.
2. The only provinces and territories with tax rate changes are: New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, and Yukon Territories.
3. EI rates appeared not to change (although the YMPE (yearly max) did, which will impact calculations).
4. CPP rates and maximums have changed (as they do every year).
5. The Basic Personal Amount is fixed at $14,398 for all regardless of income (which could be updated via script).

What if a tax update isn’t ready before my 1st 2022 payroll?

The Payroll year-end close still needs to occur after the completion of your last 2021 payroll entries and postings, regardless of whether a tax update is ready to install or not. This is not the typical approach of course, even the official documentation lists the steps as “install the year-end update” then “complete the year end file reset”.

The Year End File Reset is the payroll year end close. It moves data from “2021” to history and clears the year for “2022”. That step must be done at the proper timing or T4s will be incorrectly calculated and those who max out on CPP and EI will not have that restart as it should on Jan 1 etc.

The Tax Update itself is the code where tax rates and calculations are updated. There are no “tax tables” you can update rates by hand/script. If this is not installed by the time you run the first payroll for 2022 in Canadian Payroll, the impact is the calculations are all based on 2021 rates. If you’re lucky enough to have no provinces in the list above with tax changes, the impact appears to be limited to under-calculated CPP and EI (but please review this documentation yourself to make your own conclusions on the impact to your business!).

My recommendation is review your situation and understand how much wiggle room you have between your last 2021 payroll and your first 2022 payroll. If you are in the position you can wait for the update, great. If you are not, you may simply need to close the year first, and when the update is out, install it second. Just remember: do not run the Year End File Reset a second time!! Most of our documentation will seem as if you have to run that process after installing the update and you simply need to do that step once.