COMPLIANCE
Examples
One-off payment or single annual bonus l Brenda earns $400 per week, and in June receives a one-off bonus of $300 l divide bonus by 52 ($5.77) and add it to the ordinary pay l calculate federal and province tax on $405.77 l from the answer, deduct the taxes usually deducted on $400 l multiply the remaining answer by 52 to give the total additional tax due on the bonus l add this to the usual deductions for $400 pay.
Subsequent one-off payments l Claude also earns $400 per week, and received a bonus of $300. Two months later, he receives a second bonus of $780 l take the first bonus and divide it by 52 ($5.77), do the same to the second bonus ($15) and add these amounts to the usual weekly salary ($400 + $5.77 + $15 = $420.77 l find the tax from the federal and provincial tables for $420.77 l deduct the tax due on $405.77 to give the tax due on the additional $15 l multiply the answer by 52 to get the total additional deduction on the $780 bonus l repeat this process each time an additional bonus is paid. Pay arrears l Deborah earns $420 per week. She’s awarded a pay increase to $450 per week on 1 July, back dated 12 weeks l arrears of $360, together with the new rate of $450 are payable l compare the federal / provincial tax due on the table for $450 with $420 l multiply the difference by 12 (weeks the arrears are due for) to compute the additional tax due on the arrears of $360 l add this to the usual tax now due for income of $450.
throw light on just how an individual’s tax has been calculated. While the Canadian approach tackles the issue of additional payments at pay time, other countries are content to leave the issue until the end of the year. The Japanese PAYE system requires employers to compare income for the year every December to an annual tax table to ensure the tax deducted each month matches that due for the year. The employer must then arrange refunds or additional deductions as appropriate as part of the year-end process. This While the Canadian approach tackles the issue of additional payments at pay time, other countries are content to leave the issue until the end of the year approach helps to ensure that most Japanese employees don’t need to complete a tax return. The German system requires that one-off elements of pay are coded as such, and the payroll software separates them from regular pay to assess tax using a marginal tax rate based on the likely total annual income.
Like the Japanese system, an annual check is also then performed at year-end when total annual income is known. Church taxes Finally, in the UK we’re currently blessed with only one income tax to worry about. But plenty of countries have supplementary income taxes, the calculation of which is based on the initial income tax figure rather than the income itself. Luxembourg and Japan currently have supplements calculated as a percentage of income tax, then added on to the initial income tax calculation. Germany has the solidarity surcharge calculated as 5.5% of the wage tax liability (rather than of the income being taxed) and church taxes calculated for various Christian and Jewish sects at 8-9% of wage tax. Liability for church tax is determined by church membership, and many Germans maintain membership to enable access to the church for births, marriages and funerals. But the German system requires all taxpayers to complete an annual return which is likely to be scrutinised in detail. Consider the case of Mr Vorpommern, fined by the tax authorities for non- declaration of church taxes, and which became a test case for the subject. He was born in 1963 in the former east Germany and was baptised into the Evangelical
Lutheran church. He checked the box ‘not subject to church tax’ on his 2015 tax return, but the tax authority checked baptismal records and identified him as a member. He argued he had known nothing about his baptism (his parents hadn’t told him he’d been baptised) and he didn’t formally renounce membership until 2016 (after the issue arose). The Tax Authority won the case and the charge for church tax for 2015 stood. The court found that the christening had made him liable and said, “Since the income tax return asks about religious affiliation and this question has to be answered by the tax citizen to the best of his knowledge and belief, he must inquire with information providers (e.g., his parents) about his possible baptism or church tax liability”. n Plenty of countries have supplementary income taxes, the calculation of which is based on the initial income tax figure rather than the income itself
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| Professional in Payroll, Pensions and Reward |
Issue 85 | November 2022
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