Reduced Tax as Source Deduction

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Posted on by Bill Campbell

We have a client that has a letter from the CRA that allows them to reduce the amount of tax deducted for several employees. While I am clear on where to enter and or change the Tax Deducted amounts, what I am not clear on is where to enter an amount that will reduce the amount taken.

My gut says to enter a negative value in the the same field you would enter the Increase into and let it go at that - but the client is not into 'gut feels'

Some assistance from the Canadian Payroll Team would be great.

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Jeff Rowles 500 on at

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Hi Bill,

I'm not sure if it would operate differently in Canadian Payroll, but based on my experience, the US Payroll employee federal tax setup window does allow for a negative amount to be entered into the "Additional Withholding" field, and does in fact, reduce that amount of tax that would have been withheld by whatever negative amount that is entered into this field.

If that wouldn't work, I'm wondering if setting up a deduction code specifically for this purpose, and entering a negative value would work for this scenario. Actually, I kinda like this idea better because, although it would not impact the CRA tax line, it would provide the employer and the employee very specific and historically available amounts that leave no question as to exactly how much each employee is being credited for. Of course, this would require a process change for the employer when it comes to remitting the tax payments, and also a manual adjustment to the CRA tax filing forms (or possibly you could write a script of some sort to handle).

Not being experienced in Canadian payroll, I could be missing something.

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Bill Campbell 12 on at

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Jeff, I am working in the TEST system this morning and will see the impact of the negative value in the Additional Withholding.

The deduction would be interesting - but I am not clear on how this would impact the tax?

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Jeff Rowles 500 on at

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The negative deduction code idea wouldn't have a "direct" impact on the CRA tax line. Rather, this would act as an offsetting credit where the combined effect would reduce the CRA tax by the desired reduction amount per employee.

Because it has no direct impact, this is why I mentioned in my prior post about ensuring consideration for whoever pays tax withholding amounts to the CRA because would need to take the new deduction credit into account to reduce the CRA tax withheld. Also, when preparing the year-end T4 form per employee, would need to make a one-time adjustment to reduce the tax withholding amount on the Payroll Year End Wage table (I believe that would be the CYP10101)...this could be done with SQL update script.

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Bill Campbell 12 on at

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Hello Jeff, hope all is well.

So since our discussion we did implement the 'negative' tax to reduce the Tax deducted from the client and it seems to be working correctly. The staff has a set amount that the CRA approved as a deduction - 625.50 - per cheque. And all is well as long as the amount of tax calculated to be dedcuted remains above that amount. And for the last 5 months that has been the case.

This last pay period the staff did not work any overtime, worked regular hours and this resulted in a tax calculation of less than normal.

As example in

June, the tax deduction was calculated at 650.61 - apply the negative additional tax and the staff was deducted 25.11.

August, the tax deduction was calculated at 537.85 - apply the negative additional tax and the staff showed a tax withholding of (85.65) that is a negative 85.65

Now in theory that should work, it appears correct on the Pay Advice slip but when it comes to the JE and the Update of the Masters it is reporting as out of balance by the 85.65. In fact the error message that is presented when attempting to Post Master is that the batch is out of balance by the 85.65

When I look at the JE in the CPY30130 table, there is a single line for the tax that does not include the 85.65 credit that should be there.

It appears that the application has ignored this amount in the JE but is showing it in the Advice slip.

Any suggestions.

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Bill Campbell 12 on at

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Few more details we have discovered while trying to work this out.

If the amount of tax that is going to be paid is greater than the additional deduction amount, then the system works correctly and the tax amount is reduced by the additional negative amount.

However, if the tax calculated is less than then negative additional amount the system goes a bit nutty.

It seems that the idea of negative tax in a regular pay process never crossed anyone's mind and therefore, while it is calculated and shown in the Employee Detail reports and on the Detail Advice slip, it is dropped when it comes to creating the GL Poster file.

So, even though the details in the reports appear correct, they do not post.

Solution Attempted

I have tried to update the two posting tables - CPY30130 and CPY30131 - but I still get a message at the time of posting that the GL Poster file is not in balance. What other table might I be missing.

Solution Two

Change the amount of the Additional Tax Deduction to only be the max amount needed to wipe out any tax being calculated. If there is 700 tax, then the max is fine. If there is only 500 tax calculated, then change the amount of the negative tax to 500. This seems to work.

Any one got anything to add?

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Isaac Olson on at

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Hi Bill,

It looks like you have found a few options to try and automate this.

I have seen where an employee gets a letter from the CRA for an authorized Annual Deduction and the letter usually states the amount that needs to be put into the system for Cumulative Averaging, which is what GP uses for Taxes.

--------------------------------------------------------------------------------------------------

(Cards >> Payroll - Canada >> Employee >> TD1 Values >> Tax Credits)

Check the Update button, and enter the Authorized amount.

Since GP uses Cumulative averaging on its tax calculations, according to the document it would tell you that $XX,XXX would be entered into the Authorized Annual Deduction Amount in this field.

Authorized Annual Deduction -

Annual deductions such as child care expenses and alimony payments, etc authorized by a tax services office or tax centre. The amount entered will represent the annual amount of the authorized deduction. The system will use the value entered here to reduce the employee's annual taxable income.

Authorized Annual Tax Credits -

Other federal tax credits, such as medical expenses and charitable donations authorized by a tax services office or tax centre. The amount entered here will represent the annual amount of the tax credit. The amount entered here will be used to reduce the employee's basic federal tax amount.

--------------------------------------------------------------------------------------------------

If your letter from the CRA does not fall under this, then my recommendation would be to make the adjustment manually after calculating the checks.

Transactions >> Payroll - Canada >> Adjustments >> Detail Adjustments

Use the Payroll Detail Adjustments - Canada window to add or modify employee deductions for taxes, Employment Insurance (EI), and Canadian Pension Plan or Quebec Pension Plan (CPP/QPP).

This is only one employee, and it is only for a couple of months by the sounds of it, so it would not be too difficult of a process to manually make this change after calculating the checks.

Thanks!

Isaac Olson

Sr Support Engineer

Microsoft Dynamics GP

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Bill Campbell 12 on at

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So first of all I think I was attacking this the wrong way.

First an additional Tax deduction, set as a negative, as per the CRA letter to reduce the amount of the tax taken at Source by a max of 623.56 is only there to reduce the amount of tax paid, it is not there to be a 'tax refund'

If the employee is not taxed at an amount greater than 623.56 then the max reduced is only the amount charged.

In my example from before, if the employee's tax is calculated at 723.56 then the system could apply the full amount of the CRA letter value, and reduce the tax payable by 623.56, leaving the employee with a 100.00 tax payable.

If the employee's tax calculation is 523.56 it does not work out that the employee should get a 100.00 refund and cash attached back to increase the Net Pay.

This is where we went off the rails in working this out. All the prior comments and suggestions all had to do with 'getting the 100.00 into the net pay'

THAT IS WRONG

In discussions with accountants who do payroll all the time, I was told that the intent of the CRA letter is not to get refunds but to reduce the payment at the time. You can not reduce more than what is being calculated.

So, long and short is that even though the CRA letter says 623.56 reduction in tax payable at source, it has to be adjusted to max of the tax calculated at each payroll run. My solution to this will be to remove the amount of the negative additional Tax from the employee card,

(Cards >> Payroll - Canada >> Employee >> TD1 Values >> Additional Tax Credits) with value entered as NEGATIVE

Then run the regular payroll batch process, review the amount of the tax that employee is going to be charged, and if the value is greater than 623.56, I will enter that back into the card. However, if it is less, then I will enter the amount calculated as the deduction. This will generate a payable of zero.

Apologies to Microsoft developers for suggesting that they missed something when considering my earlier comments, we all learn as we work out weird issues like this.

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