Learning Objectives

Notes

Canada Customs and Revenue Agency publishes Teaching Taxes Program each year that provides useful information for this module.

Payroll records are required by law, specifically, Canada Customs and Revenue Agency. There are federal and provincial laws governing the paying of employees of which students should be aware.

Discussion should include some of the consequences of not reporting all earned income to Canada Customs and Revenue Agency and what happens when an employer does not report or submit employee deductions and taxes.

Examine the social insurance card and the forms needed to apply for the card.

Examine the TD-1 form to be filled out by each new employee to establish the net claim code so that income tax may be deducted from pay.

Discuss the various methods by which employees are paid: for example, hourly, monthly, commissions, combination salary and commission, piece-work compensation, etc. Give examples of a workplace where the various methods may be used. Employees may be paid weekly, bi-weekly, monthly, semi-monthly, etc.

Calculate gross pay of hourly-paid employees using time cards. Give an appropriate example of limitations within the workplace (preferably one from the local community). For example, an employee may be docked 15 minutes if arriving 1 minute after the hour.

Calculate the gross pay of an employee on straight commission, salary plus commission, and piecework arrangements. Examples from the community would be best for students.

Identify compulsory deductions required by law in Canada, briefly stating the benefits derived from each and the approximate yearly maximum and minimum contributions.

• Canada Pension Plan (CPP). What is its purpose? (pension due to retirement, death, orphan's benefits, or disability). Note: Treaty and Status Indians working in reserve-based businesses are not required to pay CPP as it is based upon Taxable Income. There are conditions for these individuals to contribute to CPP on a voluntary basis. In such cases the employer would make application to Canada Customs and Revenue Agency for coverage under CPP, and would make the deduction from the employee's pay and remit it to Canada Customs and Revenue Agency just as any other business. If this process is followed, all the Status and Treaty Indian employees in the reserved-based business must participate.
• Employment Insurance (EI). What is its purpose? (benefits for regular or special job loss, maternity leave, parental leave, some benefits for sickness). Discuss the term Insurable Earnings.
• Income Tax Purpose: to raise money for federal and provincial governments. What do they use the money for? Review and discuss the need to know the net claim code of the employee when deducting income tax.
• Garnishment: What is a garnishment? What are the limits? What is the responsibility of the employer?

Identify voluntary deductions (employee must authorize the deduction) and those that may be required by collective bargaining. Give a brief description of each.

Students should be aware of the deductions which may be affected by The Labour Standards Act and the provisions for minimum employment standards. Some deductions that are affected are union dues, group insurance, employee purchase plans, and health insurance.

For more information on The Labour Standards Act, consult the Saskatchewan Labour website (readyforwork.sk.ca).

To understand how the payroll cycle fits into the accounting cycle, students should realize that the payroll register is the source document for payroll journal entries to be made in the general journal or the cash payments journal.

Transfer relevant data to employees' earnings records. Transfer gross pay to the payroll register. Also, transfer relevant individual payroll information from the employees' earnings record (net claim code, employee number, etc.).

Using Canada Customs and Revenue Agency charts, where applicable, obtain net pay for each employee listed on the register. Students must be aware that certain items must be deducted from gross pay (taxable earnings) before income tax is transferred from charts. These items include registered pension plans, union dues, and company group RRSP plans.

Identify CPP and EI as being compulsory employer contributions. Employers may also match or contribute to other deductions such as: registered pension, health benefits, group insurance, etc.

Workers' Compensation should be introduced here as being solely the financial responsibility of the employer -- realizing the benefit employees may derive. Types of coverage could be discussed. Some examples of rates may be given.

Record the journal entry (general or synoptic/combination journal) resulting from a payroll register (gross pay = salaries/wages expense and establish current liabilities).

Record the journal entry resulting from the employer's contributions to payroll (payroll tax expenses or individual expenses).

Record the payment of the employees in a journal (general/combination or in a cash payments journal if students have studied a cash payments journal by this time).

Is money paid to employees taken from a regular cash account or is an imprest system (money removed from regular cash account to another account) established strictly for payroll? What are the advantages? How do these types of chequing accounts affect cash control?

Discuss how the employees may be paid: cheque or bank transfer. What are the advantages and disadvantages of each?

In the general, synoptic/combination or cash payments journal, record the entries necessary to remit employee benefits to various agencies. Businesses remit CPP, EI, and Income Tax to Canada Customs and Revenue Agency. At what intervals is this remittance made? Where can the bill be paid? What information is recorded on the remittance form (PD7AR) ?

Up-to-date information on source deductions may be obtained from the website of Canada Customs and Revenue Agency:
Ccra-adrc.gc.ca

Students should be aware of the employer's responsibilities. By law they must prepare a T4 for each employee by the last day in February immediately following the taxation year (the T4 may be prepared directly from the Employee's Earnings Record) and prepare a T4-T4A Summary for Canada Customs and Revenue Agency. After the year-end data is taken from the Earnings Record, balances should be returned to zero.

A Record of Employment must be completed when an employee leaves a place of employment. Information from the Employees' Earnings Record can be transferred to this form. The students should be familiar with the process for correct completion of the form.

If time permits and resources are available, student may work through a payroll application. This application may be:

If students are using the one-write system, the advantages of preparing the cheque and the register at the same time should be identified. If students are using a spreadsheet application, formulas present in the application greatly reduce the time spent on routine payroll preparation. If students are using an accounting package, they should consider at what point is it cost efficient to purchase expensive software?

Students should realize that banks and other firms will process payroll for a fee. Analyzing the pros and cons of having an outside agency do payroll is a worthwhile activity.

After working through the step-by-step payroll procedure, students may: conceptualize the importance of correct payroll procedures in business; list government regulations that affect payroll procedures; and relate an efficient payroll system to overall cash control.

Learning Objectives

Notes

5.12 To establish a relationship between income taxes, the cost of government services, and the Income Tax Act. (CCT)

Students should be aware of some highlights:

• The definition of income tax
• Included in income tax are both provincial and federal taxes
• Income tax is deducted by the employer but is assessed by each taxpayer on a yearly basis
• Income Tax returns must be filed by midnight, April 30 of each year
• A self-employed person has the sole responsibility of forwarding income tax to Canada Customs and Revenue Agency
• What are taxes used for (provincially and federally)?
• Under the Income Tax Act, Canada Customs and Revenue Agency has the power to prosecute tax evaders and tax avoiders through legal means
• The history of tax in Canada may be delved into if time permits
• What are the current federal rates of income tax?
• What are the current provincial rates of income tax? These amounts change yearly. A chart of provincial tax rates may interest students.

All students should understand that the treaties between the Crown and the First Nations established a special status for Treaty Indians. The fact that tax exemption was agreed upon as part of the compensation for ownership of most of the land in Saskatchewan should be explained. The Office of the Treaty Commissioner, Federation of Saskatchewan Indian Nations, and Tribal Councils are a good source for further information and resources.

5.13 To become familiar with the components of the personal income tax form and its terminology. (IL)

When looking at the personal income tax return that a secondary student may complete, identify the major components:

• calculation of total income
• calculation of taxable income
• calculation of total non-refundable tax credits
• self-employment sections
• personal amounts
• tax payable.

Terms to note may be: employment income, interest and other investment income, moving expenses, registered pension plan, registered retirement savings, dependents, non-refundable tax credits, tuition fees, education amount, taxation year, T4 slips, and personal amounts.

The "Teaching Taxes Program" available from Canada Customs and Revenue Agency (CCRA) is very useful here. It is a free resource from CCRA, Ottawa ON, K1A 0L8

5.14 To demonstrate the preparation of a personal income tax return for a Secondary level student. (TL)

Students prepare personal income tax returns based on problems provided in Teaching Taxes, student workbooks or realistic simulations provided by teacher.

Simulations should be based on the student experiences (part-time jobs, those considering post-secondary education, single parents, etc.).

Students may summarize the need for income tax. Where is the money spent? What is their responsibility to pay? How does each individual benefit from the collection of income tax?

Learning Objectives

Notes

5.16 To express the need for and the purpose of property tax.

Property tax, which is a tax on land, is a source of revenue for municipal governments and school boards. A definition of land may include real property-land, buildings, and related local improvements such as sidewalks, etc. Property owned by churches, hospitals, government agencies, and crown corporations may be exempt from property tax.

All revenue required by cities, towns, rural municipalities, and school boards over and above the amount of grants received must come from property taxes and/or business taxes.

All reserve land is held in trust by the Federal Government for the benefit of Indian people and is exempt from property taxation as stipulated by the Indian Act, sections 87 and 89.

The components of the property tax formula are as follows:

Total Property Tax = Assessed Value x Mill Rate of Land

Discuss assessed value and the method of determining the tax rate.

The mill rate is determined by the municipal council preparing a budget and the school boards preparing a budget. The shortfall from grants for the two parties must be made up from property taxes and business taxes.

Note: Municipalities cannot deficit budget as provincial and federal governments can. They must "0" balance budget or surplus budget; however, in a surplus budget, taxpayers may question why the surplus is accumulated.

General information on property and business taxes may be obtained from the Saskatchewan Government website and the Saskatchewan Assessment Management Agency website.

Through accounting procedures including all expenditures and sources of revenue, the municipality or school board determines the amount of money that must be raised through property taxation. The property tax system shares this cost in proportion to the value of each piece of property in the municipality or school division. For example, if property A is assessed to be three times more valuable than property B, then the owner of property A will pay three times as much property tax. Properties are assessed by the Saskatchewan Assessment Management Agency from time to time.

The property tax formula would be developed as follows:

Property tax rate = amount of money to be raised

assessed value of all property in municipality

Because the property tax rate is a small decimal value, a unit called the mill is used for simplicity and property tax rate is usually called the mill rate. 1 mill = 0.001 cent. A property tax rate of 0.0074 would be a mill rate of 74.

Mill rate = amount of money to be raised X 1000

assessed value of all property in municipality

The mill rate is applied to calculate the tax due for each piece of property.

Tax due = assessed value of the property X mill rate

1000

Another way to calculate the tax due is that the mill rate is the amount of tax due for each $1000 of assessed value of a property.

In Saskatchewan, municipalities and school boards calculate their mill rates separately and they are combined on the tax notice that is sent to each property owner by the municipalities. Municipalities collect the taxes and give the school division(s) portion to them.

Adjustments are made to this basic system to make taxation as fair as possible. A visit from or to a tax person from the municipality could be a good experience for the students.

Mathematical calculations are performed and/or reinforced in the Mathematics 20 program. Ensure that the instruction in Mathematics and this module complement student learning.

Have students calculate property taxes from given information, preferably from their own locality, following an example like the one shown below:

A sample of a property tax calculation might be:

Assessed value of land $12 000

Assessed value of improvements $52 000

Total assessment $64 000

Improvements means buildings on the property

Municipal mill rate 15

School division mill rate 17

Municipal tax due ($64000 X 15)/1000 = $ 960

School tax due ($64000 X 17)/1000 = $1088

Total tax due $2048

A few sample questions for students to calculate is all that is necessary at this level.

The source document for the journal entries would be the tax notice from the local municipality office. The general, synoptic/ combination or cash payments journal may be used to record the entries. Is this entry recorded yearly or is a portion of it recorded at the end of each accounting period (Matching Principle)?

Students may be aware of local discounts or penalties for early or late payments. They may be included in the entries.

Learning Objectives

Notes

The business tax is calculated essentially the same way as property tax. The property tax and the business tax are added together to meet the expected shortfall predicted by the municipal councils and the school boards.

The components of the business tax formula are:

Business Tax = Business Assessment x Mill Rate

In most municipalities, assessment is determined from the amount of floor space occupied by the business and how the space is used.

Students could check with their municipal officials to see how business tax is assessed and calculated in their community. They should explore the variations of assessment for different types of business.

Students should be aware of how business tax differs from property tax. Many small business owners have strong opinions about business tax. Students could interview business owners and municipal officials and represent different opinions in a debate.

The source document for the journal entries would be the tax notice from the local municipality office. The general, synoptic/combination, or cash payments journal may be used to record the entries. Is this entry recorded yearly or is a portion of it recorded at the end of each accounting period (Matching Principle)?

Students may be aware of local discounts for early payments, and penalties for late payments. These may be included in the entries.

Learning Objectives

Notes

The Goods and Services Tax (GST) is a tax on the sale of both goods and services. It is monitored by Canada Custom and Revenue Agency (CCRA).

The Saskatchewan tax is called the Provincial Sales Tax (PST) and is monitored by the Department of Finance, Government of Saskatchewan.

Students should understand the need for and the purpose of provincial and federal sales taxes. The sales taxes are a main source of revenue for the governments.

Status and Treaty Indians are exempt from paying provincial sales tax however they are not exempt from paying GST. Contact the FSIN or Canada Custom and Revenue Agency for more information regarding GST and Status and Treaty Indians.

Students should be able to give concrete examples of where the revenue from taxation is used both federally and provincially and if possible in order of priority or usage (e.g., Provincially: health, education, social programs, highways. Federally: social programs, defence, etc.)

Students should be aware of what is and what is not taxed in Saskatchewan. What is Saskatchewan's current rate of taxation? A summary of provincial taxes across Canada may be valuable in comparing geographic areas, economic conditions of provinces and the effect on taxation, and other relevant concepts.

5.25 To summarize and explain the key aspects of the provincial sales tax. (CCT)

Provincial taxes are usually not "hidden". They are paid by the consumer at the time of purchase and are collected by the retailer for the province. The retailer receives a commission for collecting the tax.

Calculations of tax on articles purchased may be completed by students. Student exercises may contain taxable items and non-taxable items. To determine the provincial sales tax exempted items and the commission rate, contact the Department of Finance, Government of Saskatchewan.

Suggested entries may be:

Goods and Services Tax:

GST charged on Sales $97.15

GST Paid on Purchases $84.60

Cash 12.55

Property or Business Tax:

Property/Business Tax Expense $19 380

Property/Business Tax Payable $19 380

In summary: Who pays the taxes? What are the taxes? Where does the money go? Could municipalities, provinces, and Canada exist without these taxes? How does an individual benefit from taxation?