ARCHIVED CD 2009-030

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December 15, 2009

SUBJECT: Changes to the Net Pay Amount Commencing January 2010

1. PURPOSE

1.1. The purpose of this directive is to provide clients with information about changes to the net amount of pay commencing with the first pay of January 2010.

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, CPP and QPP Contributions

    At the beginning of each year, the lowest rate of the two possible rates of contribution to the public service pension plan 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, public service pension plan 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 public service pension plan compare their last pay in December to their first pay in January, many of them may see that they have paid a larger amount to the plan in December than in January.

    For the calendar year 2010, the contribution rate will increase by 0.3%. Effective January 1, 2010, public service pension plan contributions will be 5.5% (to a maximum of  $2,596 for the 2010 taxation year) on all pensionable earnings below and equal to the yearly maximum pensionable earnings (YMPE) ($47,200 for the 2010 taxation year), and 8.4% on all pensionable earnings over the YMPE.

    Contributions to the public service pension plan 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 public service pension plan low level, the contributions will increase from 5.5% to 8.4%. The larger the public service pension plan 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 2010.

    Effective January 1, 2010, the CPP and QPP rate remains at 4.95% of pensionable earnings. The maximum CPP / QPP contribution is $2,163.15 for the 2010 taxation year.

    The CPP contributions provide a federal tax credit of 15%. 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. This tax credit is now included in the basic credit amount of $10,505 for the 2010 taxation year.

  2. Employment Insurance (EI) Premiums

    The employee's rate of EI premiums (excluding employees working in the province of Quebec) for the 2010 taxation year remains at 1.73% of insurable earnings. The annual maximum insurable earnings will be increased from $42,300 to $43,200. Those employees who had reached their maximum EI premiums during the previous year will recommence paying EI premiums in the new year until the new annual maximum premium level is reached. Once employees reach the annual maximum premium deduction of $747.36 in 2010, 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 2010 taxation year will be decreased from 1.38% to 1.36% of insurable earnings. The annual maximum insurable earnings will be increased from $42,300 to $43,200. Those employees who had reached their maximum EI premiums during the previous year will recommence paying EI premiums in the new year until the new annual maximum premium level is reached. Once employees reach the annual maximum premium deduction of $587.52 in 2010, 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, 2010, the employee's QPIP premium rate will be increased from 0.484% to 0.506% of insurable earnings. The annual maximum insurable earnings will be increased from $62,000 to $62,500. Those employees who had reached their maximum QPIP premiums during the previous year will recommence paying QPIP premiums in the new year until the new annual maximum premium level is reached. Once employees reach the annual maximum premium deduction of $316.25 in 2010, 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, 2010.

    Effective January 1, 2010, the federal income tax table has changed as follows:

    Federal Tax Brackets and Rates
    Tax Brackets and Rates Effective
    April 1, 2009     		Tax Brackets and Rates Effective
    January 1, 2010
    Tax brackets ($) Tax rates Tax brackets ($) Tax rates
    More than - Not more than   More than - Not more than  
    0 to 41,200 15% 0 to 40,970 15%
    41,200 to 82,399 22% 40,970 to 81,941 22%
    82,399 to 126,264 26% 81,941 to 127,021 26%
    Over 126,264 29% Over 127,021 29%

    Canada Employment Credit

    Effective January 1, 2010, the maximum amount on which the credit is calculated will be increased from $1,044 to $1,051. Effective January 1, 2010, the maximum amount on which the credit is calculated will be increased from $1,044 to $1,051.

  5. Provincial and Territorial Tax Brackets and Rates Effective January 1, 2010

    There are no changes to the tax brackets or rates for the provinces of Prince Edward Island, Alberta, Manitoba and Nova Scotia.

    Newfoundland and Labrador

    Effective January 1, 2010, the provincial income tax table has changed as follows:

    Newfoundland and Labrador Tax Brackets
    Tax Brackets and Rates Effective
    January 1, 2009     		Tax Brackets and Rates Effective
    January 1, 2010
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 31,061 7.7% 0 to 31,278 7.7%
    31,061 to 62,121 12.8% 31,278 to 62,556 12.8%
    Over 62,121 15.5% Over 62,556 15.5%

    New Brunswick

    Effective January 1, 2010, the provincial income tax table has changed as follows:

    New Brunswick Tax Brackets and Rates
    Tax Brackets and Rates Effective
    July 1, 2009     		Tax Brackets and Rates Effective
    January 1, 2010
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 35,707 9.18% 0 to 36,421 9.3%
    35,707 to 71,415 13.52% 36,421 to 72,843 12.5%
    71,415 to 116,105 15.2% 72,843 to 118,427 13.3%
    Over 116,105 16.05% Over 118,427 14.3%

    Ontario

    Effective January 1, 2010, the provincial income tax table has changed as follows:

    Ontario Tax Brackets and Rates
    Tax Brackets and Rates Effective
    January 1, 2009     		Tax Brackets and Rates Effective
    January 1, 2010
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 36,848 6.05% 0 to 37,106 5.05%
    36,848 to 73,698 9.15% 37,106 to 74,214 9.15%
    Over 73,698 11.16% Over 74,214 11.16%

    The provincial surtax payable has been revised as follows:

    • Where the basic provincial tax payable is less than or equal to $3,978 (formerly $4,257), the surtax payable is $0.
    • Where the basic provincial tax payable is greater than $3,978 and less than or equal to $5,091 (formerly $5,370), the surtax payable is 20% of the basic provincial tax payable in excess of $3,978.
    • Where the basic provincial tax payable is greater than $5,091, the surtax payable is the total of 20% of the basic provincial tax payable in excess of $3,978 and 36% of the basic provincial tax payable in excess of $5,091.

    Saskatchewan

    Effective January 1, 2010, the provincial income tax table has changed as follows:

    Saskatchewan Tax Brackets and Rates
    Tax Brackets and Rates Effective
    January 1, 2009     		Tax Brackets and Rates Effective
    January 1, 2010
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 40,113 11% 0 to 40,354 11%
    40,113 to 114,610 13% 40,354 to 115,297 13%
    Over 114,610 15% Over 115,297 15%

    British Columbia

    Effective January 1, 2010, the provincial income tax table has changed as follows:

    British Columbia Tax Brackets and Rates
    Tax Brackets and Rates Effective
    January 1, 2009     		Tax Brackets and Rates Effective
    January 1, 2010
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 35,716 5.06% 0 to 35,859 5.06%
    35,716 to 71,433 7.7% 35,859 to 71,719 7.7%
    71,433 to 82,014 10.5% 71,719 to 82,342 10.5%
    82,014 to 99,588 12.29% 82,342 to 99,987 12.29%
    Over 99,588 14.7% Over 99,987 14.7%

    The provincial tax reduction is indexed and is calculated as follows:

    Where net income is less than or equal to $17,354 (formerly $17,285), the premium is equal to the lesser of

    1. basic provincial tax, and
    2. $390 (formerly $389)

    Where net income is greater than $17,354, and less than or equal to $29,541.50 (formerly $29,441.25), the premium is equal to the lesser of

    1. basic provincial tax, and
    2. $390 - [(Annual net income - $17,354) × 3.2%]

    Where net income is greater than $29,541.50, the premium is equal to $0.

    Quebec

    Effective January 1, 2010, the provincial income tax table has changed as follows:

    Quebec Tax Brackets and Rates
    Tax Brackets and Rates Effective
    January 1, 2009     		Tax Brackets and Rates Effective
    January 1, 2010
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 38,385 16% 0 to 38,570 16%
    38,385 to 76,770 20% 38,570 to 77,140 20%
    Over 76,770 24% Over 77,140 24%

    Deduction for employment income

    Effective January 1, 2010, the maximum deduction for employment income has been increased from $1,025 to $1,030.

    Yukon

    Effective January 1, 2010, the territorial income tax table has changed as follows:

    Yukon Tax Brackets and Rates
    Tax Brackets and Rates Effective
    April 1, 2009     		Tax Brackets and Rates Effective
    January 1, 2010
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 41,200 7.04% 0 to 40,970 7.04%
    41,200 to 82,399 9.68% 40,970 to 81,941 9.68%
    82,399 to 126,264 11.44% 81,941 to 127,021 11.44%
    Over 126,264 12.76% Over 127,021 12.76%

    Territorial Employment Credit

    Effective January 1, 2010, the maximum amount on which the credit is calculated will be increased from $1,044 to $1,051.

    Northwest Territories

    Effective January 1, 2010, the territorial income tax table has changed as follows:

    Taux et tranches d'imposition des Territoires du Nord-Ouest
    Tax Brackets and Rates Effective
    January 1, 2009     		Tax Brackets and Rates Effective
    January 1, 2010
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 36,885 5.9% 0 to 37,106 5.9%
    36,885 to 73,772 8.6% 37,106 to 74,214 8.6%
    73,772 to 119,936 12.2% 74,214 to 120,656 12.2%
    Over 119,936 14.05% Over 120,656 14.05%

    Nunavut

    Effective January 1, 2010, the territorial income tax table has changed as follows:

    Nunavut Tax Brackets and Rates
    Tax Brackets and Rates Effective
    January 1, 2009     		Tax Brackets and Rates Effective
    January 1, 2010
    Tax Brackets ($) Tax Rates Tax Brackets ($) Tax Rates
    More than - Not more than   More than - Not more than  
    0 to 38,832 4% 0 to 39,065 4%
    38,832 to 77,664 7% 39,065 to 78,130 7%
    77,664 to 126,264 9% 78,130 to 127,021 9%
    Over 126,264 11.5% Over 127,021 11.5%

    Tax Adjustment Factors

    Effective July 1, 2009 Effective January 1, 2010
    More than - Not more than ($) Nova Scotia New Brunswick Ontario More than - Not more than ($) Nova Scotia New Brunswick Ontario
    0 to 41,200 90% 93% 69% 0 to 40,970 90% 94% 61%
    41,200 to 82,399 103% 96% 77% 40,970 to 81,941 103% 93% 73%
    82,399 to 126,264 106% 95% 89% 81,941 to 127,021 106% 89% 86%
    Over 126,264 107% 94% 91% Over 127,021 107% 88% 89%

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 "TD1", form and/or, for the province of Quebec, a "Source Deductions Return 2010", form TP-1015.3-V (2010-01), 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
Director General
Compensation Sector
Accounting, Banking and Compensation


Reference(s): CJA 9007-8