ARCHIVED CD 2006-035

Warning This Web page has been archived on the Web.

Archived Content

Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.

Note This document has been modified. The changes are identified by a vertical line "|". Revision (|)

December 5, 2006 (Revised January 15, 2007)

SUBJECT: Changes to the Net Pay Amount Commencing January 2007

1. PURPOSE

1.1 The purpose of this directive is to provide clients with information about changes in the net amount of pay commencing with the first pay of January 2007.

1.2 A notice of information to employees concerning the above has been included with this Compensation Directive and will also be posted in the "Who are you? - Public Service Employee" page of the Compensation Sector Web site.

2. BACKGROUND

2.1 Each new year, compensation advisors must respond to queries from employees about changes in the net pay amount on the first pay in January compared to the last pay in December.

2.2 To assist clients in explaining these differences to their employees, this directive is issued on a yearly basis to advise them of the factors that may cause fluctuations.

3. PROCEDURES/INSTRUCTIONS

3.1 The following factors may affect an employee's net pay:

  1. Public Service Pension Plan (PSPP), Canada Pension Plan (CPP), and Quebec Pension Plan (QPP) Contributions

    At the beginning of each year, the lowest rate of the two possible rates of contribution to the Public Service Pension Plan (PSPP) is used until the maximum level of contribution for that rate is reached. Then, the higher rate of contribution is used for the remainder of the year. Beginning with the new year, PSPP contributions recommence at the low rate, until such time as they reach the maximum level of the contributions for the low rate.

    Therefore, if employees who are contributors under the PSPP compare their last pay in December to their first pay in January, many of them will see that they have paid a larger amount of PSPP in December than in January.

    For the calendar year 2007, the contribution rate will increase by 0.3%. Effective January 1, 2007, PSPP contributions will be 4.6% (to a maximum of $2010.20 for the 2007 taxation year) on all pensionable earnings below and equal to the yearly maximum pensionable earnings (YMPE) ($43,700 for the 2007 taxation year) and 8.1% on all pensionable earnings over the YMPE.

    Contributions to PSPP have a direct bearing on the income tax deducted at source since these contributions are deducted from the gross pay before determining the tax rate. Once the contributions reach the maximum PSPP low level, the contributions to PSPP will increase from 4.6% to 8.1%. The larger the PSPP contribution, the less income tax will be withheld from the employee's pay.

    Many employees reach their maximum level of Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) contributions sometime during the year. When this happens, the employee will see an increase in the net pay amount as there will no longer be CPP/QPP deductions withheld. Beginning with the new year, employees recommence paying CPP/QPP contributions until such time as they reach the maximum CPP/QPP contribution level for 2007.

    The CPP and QPP rate, effective January 1, 2007, remains at 4.95% of pensionable earnings. The maximum CPP/QPP contribution is $1,989.90 for the 2007 taxation year.

    The CPP contributions provide a federal tax credit of 15.5%. This tax credit is applied directly to the income tax that is owing and is not dependent on the employee's income tax bracket. Please note that the Quebec Tax Reform eliminated the Quebec provincial tax credit for QPP effective January 1, 1998. The tax credit for QPP is now included in the basic credit amount of $9,750 for the 2007 taxation year.

  2. Employment Insurance (EI) Premiums

    The employee's rate of EI premiums (excluding employees working in the province of Quebec), for the 2007 taxation year will be decreased from 1.87% to 1.80%. The annual maximum insurable earnings will be increased from $39,000 to $40,000. Those employees who had reached their maximum EI premiums during the previous year will recommence paying EI premiums in the new year until the maximum premium level is reached. Once employees reach the annual maximum premium deduction of $720.00 in 2007, they will see an increase in the amount of their net pay as there will no longer be EI deductions withheld.

    The employee's rate of EI premiums, for employees working in the province of Quebec for the 2007 taxation year will be decreased from 1.53% to 1.46%. The annual maximum insurable earnings will be increased from $39,000 to $40,000. Those employees who had reached their maximum EI premiums during the previous year will recommence paying EI premiums in the new year until the maximum premium level is reached. Once employees reach the annual maximum premium deduction of $584.00 in 2007, they will see an increase in the amount of their net pay as there will no longer be EI deductions withheld.

  3. Quebec Parental Insurance Plan (QPIP)

    Effective January 1, 2007, the employee's QPIP premium rate will remain at 0.416% of insurable earnings. The annual maximum insurable earnings will be increased from $57,000 to $59,000. Those employees who had reached their maximum QPIP premiums during the previous year will recommence paying QPIP premiums in the new year until the maximum premium level is reached. Once employees reach the annual maximum premium deduction of $245.44 in 2007, they will see an increase in the amount of their net pay as there will no longer be QPIP deductions withheld.

  4. Federal Tax Brackets and Rates Effective January 1, 2007

    The federal income tax table has changed effective January 1, 2007, as follows:

    Federal Tax Brackets and Rates
    (indexing factor 2.2%)
    Tax Brackets and Rates Effective
    January 1, 2006
    Tax Brackets and Rates Effective
    January 1, 2007
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 36,378 15.5% 0 to 37,178 15.5%
    36,378 to 72,756 22% 37,178 to 74,357 22%
    72,756 to 118,285 26% 74,357 to 120,887 26%
    Over 118,285 29% Over 120,887 29%

    Canada Employment Credit

    | Effective January 1, 2007, the maximum amount on which the credit is calculated will be increased from $500 to $1,000.
  5. Provincial and Territorial Tax Brackets and Rates Effective January 1, 2007

    Prince Edward Island

    There are no changes to the tax brackets or rates.

    Newfoundland and Labrador

    There are no changes to the tax brackets or rates.

    Nova Scotia

    There are no changes to the tax brackets or rates.

    Alberta

    There are no changes to the tax brackets or rates.

    New Brunswick

    The provincial income tax table has changed effective January 1, 2007, as follows:

    New Brunswick Tax Brackets and Rates
    (indexing factor 2.2%)
    Tax Brackets and Rates Effective
    January 1, 2006
    Tax Brackets and Rates Effective
    January 1, 2007
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 33,450 9.68% 0 to 34,186 9.68%
    33,450 to 66,902 14.82% 34,186 to 68,374 14.82%
    66,902 to 108,768 16.52% 68,374 to 111,161 16.52%
    Over 108,768 17.84% Over 111,161 17.84%

    Manitoba

    The provincial income tax table has changed effective January 1, 2007, as follows:

    Manitoba Tax Brackets and Rates
    Tax Brackets and Rates Effective
    January 1, 2006
    Tax Brackets and Rates Effective
    January 1, 2007
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 30,544 10.9% 0 to 30,544 10.9%
    30,544 to 65,000 13.5% 30,544 to 65,000 13%
    Over 65,000 17.4% Over 65,000 17.4%

    Ontario

    The provincial income tax table has changed effective January 1, 2007, as follows:

    Ontario Tax Brackets and Rates
    (indexing factor 2.1%)
    Tax Brackets and Rates Effective
    January 1, 2006
    Tax Brackets and Rates Effective
    January 1, 2007
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 34,758 6.05% 0 to 35,488 6.05%
    34,758 to 69,517 9.15% 35,488 to 70,976 9.15%
    Over 69,517 11.16% Over 70,976 11.16%

    The provincial surtax payable has been revised as follows:

    Where the basic provincial tax payable is less than or equal to $4,100 (formerly $4,016), the surtax payable is $0.

    Where the basic provincial tax payable is greater than $4,100 and less than or equal to $5,172 (formerly $5,065), the surtax payable is 20% of the basic provincial tax payable in excess of $4,100.

    Where the basic provincial tax payable is greater than $5,172, the surtax payable is the total of 20% of the basic provincial tax payable in excess of $4,100 and 36% of the basic provincial tax payable in excess of $5,172.


    Saskatchewan

    The provincial income tax table has changed effective January 1, 2007, as follows:

    Saskatchewan Tax Brackets and Rates
    (indexing factor 2.2%)
    Tax Brackets and Rates Effective
    January 1, 2006
    Tax Brackets and Rates Effective
    January 1, 2007
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 37,579 11% 0 to 38,405 11%
    37,579 to 107,367 13% 38,405 to 109,729 13%
    Over 107,367 15% Over 109,729 15%

    British Columbia

    The provincial income tax table has changed effective January 1, 2007, as follows:

    British Columbia Tax Brackets and Rates
    (indexing factor 1.9%)
    Tax Brackets and Rates Effective
    January 1, 2006
    Tax Brackets and Rates Effective
    January 1, 2007
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 33,755 6.05% 0 to 34,397 6.05%
    33,755 to 67,511 9.15% 34,397 to 68,794 9.15%
    67,511 to 77,511 11.7% 68,794 to 78,984 11.7%
    77,511 to 94,121 13.7% 78,984 to 95,909 13.7%
    Over 94,121 14.7% Over 95,909 14.7%

    Quebec

    The provincial income tax table has changed effective January 1, 2007, as follows:

    Quebec Tax Brackets and Rates
    (indexing factor 2.026%)
    Tax Brackets and Rates Effective
    January 1, 2006
    Tax Brackets and Rates Effective
    January 1, 2007
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 28,710 16% 0 to 29,290 16%
    28,710 to 57,430 20% 29,290 to 58,595 20%
    Over 57,430 24% Over 58,595 24%

    Yukon

    The territorial income tax table has changed effective January 1, 2007, as follows:

    Yukon Tax Brackets and Rates
    (indexing factor 2.2%)
    Tax Brackets and Rates Effective
    January 1, 2006
    Tax Brackets and Rates Effective
    January 1, 2007
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 36,378 7.04% 0 to 37,178 7.04%
    36,378 to 72,756 9.68% 37,178 to 74,357 9.68%
    72,756 to 118,285 11.44% 74,357 to 120,887 11.44%
    Over 118,285 12.76% Over 120,887 12.76%
    |

    Territorial Employment Credit

    Yukon introduced a territorial Canada Employment Credit. The new credit will be effective January 1, 2007. It will be calculated by using the lowest personal tax rate for the year and will apply on the lesser of $1,000 or the individual's employment income for the year.

    Northwest Territories

    The territorial income tax table has changed effective January 1, 2007, as follows:

    Northwest Territories Tax brackets and Rates
    (indexing factor 2.2%)
    Tax Brackets and Rates Effective
    January 1, 2006
    Tax Brackets and Rates Effective
    January 1, 2007
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 34,555 5.9% 0 to 35,315 5.9%
    34,555 to 69,110 8.6% 35,315 to 70,631 8.6%
    69,110 to 112,358 12.2% 70,631 to 114,830 12.2%
    Over 112,358 14.05% Over 114,830 14.05%

    Nunavut

    The territorial income tax table has changed effective January 1, 2007, as follows:

    Nunavut Tax Brackets and Rates
    (indexing factor 2.2%)
    Tax Brackets and Rates Effective
    January 1, 2006
    Tax Brackets and Rates Effective
    January 1, 2007
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 36,378 4.0% 0 to 37,178 4.0%
    36,378 to 72,756 7.0% 37,178 to 74,357 7.0%
    72,756 to 118,285 9.0% 74,357 to 120,887 9.0%
    Over 118,285 11.5% Over 120,887 11.5%

Effective January 1, 2007, the Nunavut payroll tax will be increased from 1% to 2%.

3.2 Clients are reminded that each individual's own personal income situation is unique. While the above factors will assist you in your explanation, there are many other factors that may have an effect on the employee's net pay. Some of the factors to consider are changes to the employee's province of work or residence, salary, deductions, taxable allowances and benefits, personal credits, and hardship exemptions.

3.3. Change in province of work

The income tax deducted from an employee's pay is based on the employee's province of work. In some situations, when an employee changes his province of work, his tax liability may be such that he owes the Canada Revenue Agency (CRA) and/or the " Ministère du Revenu du Québec" (MRQ) at year end.

Employees who change their province of work at any time during the year are encouraged to review their personal tax situation in order to be aware of their tax liability upon filing at year end.

Employees who wish to have more federal and/or Quebec income tax deducted may do so by completing a 2007 Personal Tax Credits Return, form TD1 E (07) and/or, for the province of Quebec, a "Source Deductions Return 2007", form TP-1015.3-V (2007-01), and providing this documentation to their compensation advisor. For all provinces and territories, with the exception of Quebec, the deduction of additional income tax will continue to be administered by CRA. Please refer to Compensation Directive 2002-012 , dated March 26, 2002, entitled Deductions at Source of Additional Income Tax.

4. INQUIRIES

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



Original Signed by
B. Fortin

Brigitte Fortin
Acting Director General
Compensation Sector
Accounting, Banking and Compensation


Reference(s): CJA 9007-7, 9007-8