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New Income Tax Calculation
SAMPLE LETTER TO EMPLOYEES
NEW INCOME TAX CALCULATION METHOD, "TAX ON INCOME" (TONI)
The following is important news concerning the provincial tax rate that is applied to your pay cheque.
If you work in Newfoundland, Prince Edward Island, Nova Scotia, New Brunswick, Ontario, Manitoba, Saskatchewan, Alberta or British Columbia and have personal tax credits exceeding the basic, you will need to fill in a new provincial "Personal Tax Credits Return" TD1 form as soon as possible.
The purpose of this bulletin is to provide information on the introduction of a new income tax calculation method, TONI. It will be used to calculate provincial income tax for the provinces mentioned above.
Under current Tax Collection Agreements (TCAs), all provinces and territories, except the province of Québec, set their tax rates as a percentage of the Basic Federal Tax. This method of calculating provincial income tax is called "tax-on-tax". The TCAs are being amended to allow the provinces and territories to impose provincial income tax directly on the taxable income.
This new income tax calculation method will provide provinces and territories with the opportunity to establish their own income tax brackets and rates which will be totally independent from the federal income tax brackets and rates. As a result, the federal income tax bracket and rate changes will no longer affect the amount of provincial income tax to be withheld at source.
As of January 1, 2001, all provinces will switch from the current "tax on tax" method to the new TONI income tax calculation method. Income tax for Nunavut, the Yukon Territory and the Northwest Territories will continue to be calculated on a "tax-on-tax" basis. There is no change to the method of calculating federal income tax for employees working in Québec or outside Canada. The method used to calculate provincial income tax for employees working in Québec and residing in another province remains the same.
A specific TD1 form for each province has been created by Canada Customs and Revenue Agency (CCRA). The completion of the new provincial TD1, that corresponds to the employee's province of employment, is required for all employees whose non-refundable tax credit amounts are above the basic personal amount (single), irrespective of the employee's current Federal tax credits used to calculate the employee's Federal income tax.
If you do not submit a new TD1 provincial form, this may result in you paying more provincial tax than required.
You can request the applicable provincial TD1 from your Compensation Advisor or retrieve it from CCRA's Internet Site: TD 1
The completed provincial TD1 should be forwarded to your Compensation Advisor as soon as possible.
Any request for information regarding the foregoing should be addressed to your local Compensation Advisor.