ARCHIVED Services Pay Directive: 1993-019

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Attachment A - Examples

November 29, 1993 (Revised December 23, 2004)

Ottawa, Canada
K1A 0S5

SUBJECT : Northwest Territories Payroll Tax

1. PURPOSE

1.1 The purpose of this directive is to provide information and instructions concerning the Northwest Territories Payroll Tax that is to be levied on employees working in the Northwest Territories.

2. BACKGROUND

2.1 Effective July 1, 1993, the Territorial Government of the Northwest Territories (NWT) enacted the Payroll Tax Act.

3. POLICY

| 3.1 The Payroll Tax Act requires that all employers in the NWT collect from employees, regardless of residency, one percent (1%) of all gross employment income earned in the NWT. The Government of the NWT has announced that the Payroll Tax will increase to 2% effective January 1, 2005.

3.2 Income earned in the NWT includes salaries and the value of benefits and allowances. Some income such as retiring allowances and pension benefits are exempt.

3.3 No tax is payable by an employee who 'normally works', performs duties or provides services, in the same position, outside the NWT and does not earn more than $5,000 in the NWT. If this employee earns more than $5,000 in a calendar year in the NWT, tax is payable on the full amount of remuneration earned while in the NWT.

An employee is deemed to 'normally work'outside the NWT if that employee works more than 50% of the time in that same position outside the NWT.

3.4 No tax is payable by an employee who belongs to a religious order who has taken a vow of poverty under subsection 110(2) of the Income Tax Act (Canada).

3.5 No tax is payable on Workmen's Compensation Benefits.

3.6 This tax is not a personal income tax and will not be reported on a T4.

NOTE: While the above reflects the policy of the NWT Payroll Tax Act, there are specific exemptions herein that cannot be accommodated within the Regional Pay System and will require departmental intervention. These exemptions are covered in the section hereunder entitled "PROCEDURES/INSTRUCTIONS".

4. PROCEDURES/INSTRUCTIONS

4.1 Two new codes have been established. One for current deductions "973-NWT Payroll Tax" and one for arrears "974-NWT Payroll Tax Arrears". All amounts deducted will be reflected on the entitlements and other deductions portion of the cheque stub.

4.2 Effective with the second pay in December covering the period of December 2, 1993 to December 15, 1993, current deductions of this tax will be automatically calculated by the Regional Pay System at a rate of 1% of the employee's gross remuneration, including taxable benefits, and deducted directly from the payment being issued to the employee. This payroll tax is not calculated on retiring allowances or returns of contributions.

4.3 The following exemptions from this tax cannot be accommodated within the Regional Pay System and will require departmental intervention as the tax will be calculated and deducted from the employee even though the employee should not have this tax deducted.

1. No tax is payable by an employee who 'normally works', performs duties or provides services, in the same position, outside the NWT and does not earn more than $5,000 in the NWT. If this employee earns more than $5,000 in a calendar year in the NWT, tax is payable on the full amount of remuneration earned while in the NWT.
   
   An employee is deemed to 'normally work'outside the NWT if that employee works more than 50% of the time in that same position outside the NWT.
   
   Please refer to Annex A for examples of situations where departments should calculate and request refunds.
2. No tax is payable by an employee who belongs to a religious order who has taken a vow of poverty, and
3. No tax is payable on Workmen's Compensation Benefits.

Where an employee is subject to any one of the above exemptions, departments should request a refund using the "DER" screen for on-line users or a 16R for batch users.

It should be noted that there may be ongoing exempted situations that will require refunds. At this time, these refunds will have to be requested after each pay run where the tax should not have been deducted. Departments are requested to provide an estimate of the number of employees requiring ongoing refunds and the reason for exemption. This information may be provided by telephone to the contacts in Section 5 "INQUIRIES" of this directive.

4.4 An automatic recovery, for the period of July 1, 1993, to December 1, 1993, of the NWT payroll tax will be calculated by the Regional Pay System and commence the first pay in January 1994. Recovery of this tax will be effected from January 1994 to the end of March 1994.

4.5 A computer listing entitled 'NWT Payroll Tax Arrears Report' will be generated by the Regional Pay System and forwarded to departments. This report will reflect all active and T- Struck-off-strength (SOS) employees, the gross remuneration subject to the tax and the applicable tax to be collected.

Departments are requested to review this report and advise paying offices in writing of employees who were in exempted situations during the retroactive period where the tax should not be collected in whole or in part. Notification to pay offices prior to the automatic collection of the arrears will allow that the automatic recovery be stopped or amended. Should the employee be subject to this tax for part of the retroactive period, departments should advise the pay office of the gross monies applicable to the tax and the respective amount of tax to be collected. The pay office will determine the amount of tax to be collected by pay period and commence the amended recovery over the specified recovery period.

Unfortunately, the time frame available in which to advise the paying office is very limited as the first pay of January 1994 will be run at approximately the same time as the generation of the arrears report. Where it is possible to identify the affected employees in advance of receiving the arrears report, departments are requested to advise the pay office. In some situations it may not be possible to stop or amend the deduction prior to pay period one of 1994. Should this occur, departments are requested to stop and refund the deduction.

It should be noted that the recovery of arrears for T-SOS employees will be commenced by the pay office upon the employee's return to duty.

4.6 Upon notification from the Regional Pay System to the pay office that there is a change in the geographical location of employment to or from the NWT, the pay office will verify the change to determine whether there is a collection of arrears or a refund required and take action accordingly.

4.7 Further action may be required concerning employees in SOS status and departments will be notified if applicable.

5. INQUIRIES

5.1 Any inquiries on the information contained in this document should be addressed to your Public Works and Government Services Canada (PWGSC) Compensation Services Office.

Original Signed by
P. Charko

P. Charko
Director General
Compensation Sector
Government Operational Service

Attachment A - EXAMPLES

Example 1

Susan White worked as an auditor for Department A in the NWT. In the course of her duties as an Auditor, she was sometimes required to work outside the NWT for approximately 80% of the time to British Columbia and other provinces to carry out audits. During the calendar year she earned $4,500 while working in the NWT and is exempt from paying this tax however, the tax was deducted on her full salary. The basis for the exemption is that she normally worked outside the NWT (i.e. more than 50%) and has earned less than $5,000 in the NWT.

This employee is entitled to a refund of the tax deducted. The refund should be calculated as follows:

• Permanent Work Location NWT (20%) and earned $4,500
• Temporary Work Location BC (80%) and earned $38,000
• The refund should be based on the total earnings of $42,500
• Refund = $42,500 x 2%

Example 2

Susan White worked as an auditor for Department A in the NWT. In the course of her duties as an Auditor she was sometimes required to work outside the NWT for approximately 60% of the time to British Columbia and other provinces to carry out audits. During the calendar year she earned $14,500 while working in the NWT and is not exempt from paying this tax on monies earned in the NWT. However, the tax was deducted on her full salary. There is no exemption on monies earned in the NWT as she has exceeded the $5,000 limit.

This employee is entitled to a refund of the tax deducted based on the monies earned outside the NWT. The refund should be calculated as follows:

• Permanent Work Location NWT (40%) and earns $14,500
• Temporary Work Location BC (60%) and earns $28,000
• The refund should be based on the monies earned in BC that being $28,000
• Refund = $28,000 x 2%

Example 3

Susan White worked as an auditor for Department A in the NWT. In the course of her duties as an Auditor she was sometimes required to work outside the NWT for approximately 20% of her time to British Columbia and other provinces to carry out audits. While in the NWT she earned $34,500 and is not exempt from paying this tax on all monies earned regardless of work location. There is no exemption on monies earned as she is not considered to be normally working outside the NWT.

This employee is not entitled to a refund of the tax deducted.

Please note that whenever an employee works more than 50% in the NWT, there will be no refund applicable.

• Permanent Work Location NWT (80%) and earned $14,500
• Temporary Work Location BC (20%) and earned $28,000
• There is no refund to be calculated.