July 2008 Payroll Changes

CRA released its update to payroll deduction formulas for July 1, 2008 in draft format to enable programmers of payroll programs to get to work early, despite the fact that the Northwest Territories budget is expected this week. An overview of the important issues follows:

Federal Tax Rates and Brackets. There are no changes to the federal tax rates, income thresholds, or personal amounts required for July 1, 2008. However, the federal Form TD1 has been revised for July 2008 but has yet to be released by the CRA.

General refiling of the 2008 federal Form TD1 is not necessary, but a new employee, a new pensioner, or an individual who wishes to change his or her federal claim amounts will have to complete the July 2008 federal Form TD1.

Canada Pension Plan (CPP) and Employment Insurance (EI). There are no changes to CPP or EI for July 1, 2008. An overview of the contribution rates and amounts follows:

Provincial Changes for July 1, 2008. Some provincial and territorial changes have been announced for July 1, 2008: Newfoundland and Labrador, Ontario and British Columbia. Some of these proposals are not yet law but would be retroactive when passed. There are new formulas for withholding taxes, starting with the first payroll in July 2008. For more information see Publication T4127: Payroll Deductions Formulas for Computer Programs ñ 87th Edition

For formulas and factors not included in this edition, see publication T4127, Payroll Deductions Formulas for Computer Programs ñ 86th Edition, effective January 1, 2008.

1. Newfoundland and Labrador. In the provincial Budget 2008 of April 29, 2008, changes were announced to the provincial tax rates. Effective July 1, 2008, the rates and tax brackets for Option 1 are as follows:

  • 7.7% (formerly 8.7%) on income less than or equal to $30,215;
  • 12.8% (formerly 13.8%) on income greater than $30,215, but less than or equal to $60,429; and
  • 15.5% (formerly 16.5%) on income greater than $60,429.

For the provincial tax rates to apply for Option 2, starting July 1, 2008, (cumulative averaging) see the Option 2 formulas beginning on page 17 of Publication T4127. Non-refundable personal tax credits amounts for Newfoundland and Labrador have not changed since January 1, 2008. Refer to Form TD1NL for complete information on personal amounts.

  • The basic personal amount remains at $7,566.
  • The spouse or common-law partner amount remains at $6,183.

Personal amounts will be multiplied by the province's lowest non-zero tax rate of 7.7% (formerly 8.7%). For the provincial surtax payable to apply for Option 2, starting July 1, 2008, see the Option 2 formulas beginning on page 17. The provincial labour-sponsored funds tax credit (factor LCP) for Newfoundland and Labrador remains the lesser of $750 and 15% of the approved shares purchase.

2. Ontario. In the provincial Budget 2008 of March 25, 2008, the provincial labour-sponsored funds tax credit (factor LCP) has been changed. Retroactive to January 1, 2007, the maximum investment that can qualify for the tax credit has been increased to $7,500 (formerly $5,000). As a result of the above change, the formula for calculating Ontario's LCP is changed to:

LCP = The lesser of: (i) $1,125 (formerly $750); and (ii)15% of the purchase of approved shares.

3. British Columbia. In the provincial Budget 2008 of February 19, 2008, changes were announced to the provincial tax rates and the provincial tax reduction for British Columbia. Effective July 1, 2008, the rates and tax brackets for Option 1 are as follows:

  • 5.13% (formerly 5.35%) on income less than or equal to $35,016;
  • 7.81% (formerly 8.15%) on income greater than $35,016, but less than or equal to $70,033;
  • 10.5% on income greater than $70,033, but less than or equal to $80,406;
  • 12.29% on income greater than $80,406, but less than or equal to $97,636; and
  • 14.7% on income greater than $97,636.

Non-refundable personal tax credits amounts for British Columbia have not changed since January 1, 2008. Refer to Form TD1BC for complete information on personal amounts.

  • The basic personal amount remains at $9,189.
  • The spouse or common-law partner amount remains at $7,868.

Personal amounts will be multiplied by the province's lowest non-zero tax rate of 5.13% (formerly 5.35%). The provincial labour-sponsored funds tax credit (factor LCP) for British Columbia remains the lesser of $2,000 and 15% of the approved shares purchase.

Provincial tax reduction for British Columbia. The provincial tax reduction for British Columbia is indexed and is calculated as follows:

  • Where net income is less than or equal to $16,946, the reduction is equal to the lesser of (i) basic provincial tax, and (ii) $381;
  • Where net income is greater than $16,946 and less than or equal to $28,852.25, the reduction is equal to the lesser of (i) basic provincial tax, and (ii) $381 ñ [(Annual net income ñ $16,946) ◊ 3.2%];
  • Where net income is greater than $28,852.25, the reduction is equal to $0.