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Sources deduction rules for top-up payments; Taxing employee prizes; Coverage under EI versus QPIP

Question: We are implementing a new policy that will provide top-up payments to employment iInsurance (EI) benefits for employees taking maternity, parental and compassionate care leave. Are the top-up payments subject to source deductions?

Answer: Yes, top-up payments are subject to C/QPP contributions and income tax deductions. The payments are insurable for EI (and the Quebec Parental Insurance Plan, if applicable) unless the following two conditions apply: the total amount of the payment, including the EI weekly benefits, is not higher than the employee’s normal weekly gross salary and the top-up payment does not reduce the employee’s banked sick leave, vacation leave credits or retiring allowance. Benefits may be paid during the EI waiting period without affecting the start date of EI benefits, provided it is part of the employer’s plan.

Benefits may be paid during the EI waiting period without affecting the start date of EI benefits, provided it is part of the employer’s plan.

Taxing employee prizes

Question: This year at our company picnic, we will be holding a draw for prizes for our employees (such as cameras, golf balls and gift cards). The contest is open to all employees who will be attending. Are the prizes taxable benefits for the employees who win them?

Answer: Yes, they are. The CRA states that if an employer gives an item to an employee from a prize draw that only employees can take part in, the prize is a taxable benefit. Since the prize is taxable, it is also subject to C/QPP contributions. If you pay the prize in cash, you must deduct EI and QPIP (for Quebec) premiums. Non-cash and near-cash prizes are not subject to EI or QPIP. Remember to include the GST/HST or the combined GST/QST (for Quebec) for a non-cash or near-cash prize. Report the taxable benefit in box 14 and in the "Other Information" area of the T4 (code 40) and in boxes A and L of the RL-1.

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