The CNBC is often asked questions relating to remuneration and taxable benefits for church employees. Recognizing that employment legislation varies from province to province and that sometimes there are no standard answers, we would like to share some general information for you to think about as you pay individuals involved in the ministry of your church.
In regards to employment records, each year you should prepare an annual “Letter of Employment” for your employees. This letter simply outlines the salary figures for the current year, the benefits (such as RSP and group insurance), vacation entitlements and any other information pertinent to the payroll package. In addition, TD1’s, federal and provincial, should be updated and kept current to direct the employer in tax deductions. A copy of all such documents should be kept in the employee’s file.
If an employee is claiming Clergy Residence Deduction, copies of the T1223 and, if applicable, the authorization letter from CRA to deduct this benefit at source, should also be kept in the file.
If an employee has reached age 65 and started to collect the Canada Pension while still working, the employer must continue to take CPP deductions unless the employee has completed and filed CRA’s form CPT30 ,“Election to Stop Contributing to the Canada Pension Plan”. A copy of this form should be kept in the file.
In general, employment income includes all employer-provided salary and employer provided benefits related to the employment and as such are taxable. You might think calling it something different might mean that it is not taxable, but in fact in reality it is employment income and it is indeed taxable. There are very few exceptions to this rule.
Churches will sometimes bless their regular volunteers with a one-time amount in appreciation for their service. This might apply to teachers or lay leaders and might be called an honourarium or stipend recognizing their on-going commitment and service. It might be in the form of a gift certificate, a gift, or money but any type of compensation would essentially suggest that these individuals are now employees. Therefore, this type of payment would be considered salary and the proper deductions should be taken and a T4 issued.
Where individuals come in and are paid an honorarium for a single engagement, such as guest speakers, musicians, teachers and leaders, the church would not need to consider this as salary and no deductions would be necessary.
If an individual is self-employed and has been hired to provide a service to your church, that individual must provide an invoice that the church will reimburse and then the amount would not be taxable.
If the income/benefit is taxable, it is also pensionable (CPP) and insurable (EI) in the eyes of Canada Revenue Agency. The annual maximum Canada Pension Plan employee amount for 2016 is $2544.30 and for Employment Insurance the maximum is $955.04. The employer also has an annual maximum amount that must be contributed.
Gifts to Employees (Click here for more info)
Any gift to an employee would be considered a taxable benefit unless it falls into the following criteria:
A non-cash gift or award for less than $500.00 annually.
An employment anniversary gift for less than $500.00 (term cannot be less than 5 years)
If the gift noted above exceeds the $500.00 limit, the amount in excess is taxable.
Cash or near cash (gift cards, gift certificates), bonuses, and points redeemable for awards are all considered as taxable benefits.
Travel Allowance (Click here for more info)
If your church pays a travel allowance, your employee must turn in a travel log and receipts to account for the travel reimbursement. A per kilometre reimbursement is the only acceptable method of providing a tax free allowance to an employee for the use of his vehicle in connection with his employment. If no travel log is kept, the allowance would be considered a taxable benefit. The allowance must not be more than the actual annual cost.
There is much more detailed information available on the CRA website, www.cra-arc.gc.ca. Also, be sure to check your provincial employment standards to ensure you are up to date.