General Payroll Information
The Income Tax Act determines that income from employment is determined on a received basis after taking into account specific allowable deductions in computing the said income. Employment income includes:
- salary, wages and other remuneration
- benefits received or enjoyed in the year related to employment
- allowances (other than exempt allowances)
Some deductions allowed in computing employment income for pastors include:
- annual fair market rental value of clergy residence (clergy residence deduction)*
- traveling expense relating to employment (if employee does not receive an allowance or reimbursement
- certain office expenses
This is by no means an exhaustive list. If you are not sure - ask! Find out before you do your payroll calculations - it will be well worth your time in the long run! Canada Revenue Agency (CRA) has an excellent web site with detailed information on payroll. The following information is provided as a summary and will link you to various CRA materials.
The following steps are listed to help employers understand their responsibility regarding payroll. Visit the website for additional information and links.
- open a payroll account
- hire employees
- have employees complete TD1 federal and TD1 provincial forms
- calculate deductions
- tax tables
- payroll deductions online calculator
- remit deductions
- complete and file information returns
- keep proper records
Gifts in Cash or in Kind to an Employee
The CRA interprets such gifts as a "benefit of employment" and therefore the value must be included in payroll calculations.
Some churches collect personal gifts from individual members of the congregation for their pastor at Christmas time. The amount collected is given directly to the pastor. This amount is not included in the income or expense of the church and individual donors do not receive tax relief for such gifts. The practice is not to treat such a gift as income for income tax purposes.
Sample Payroll Worksheet
Calculation of Payroll Deductions
The following example is for a pastor who is earning an annual salary of $48,000.00. The church also pays for group insurance and $1800.00 to a Retirement Savings Plan. The following shows how to calculate the monthly deductions.
A. Salary 4,000.00
B. RSP 150.00
C. Taxable Life Ins Benefit 45.26
D. Taxable LTD Benefit 54.36
Sub Total 1 (A+B+C) 4,249.62
E. Clergy Residence* 1,383.34
Sub Total 2 (A+B+C-D) 2,866.28
From CRA Tax Tables:
- Canada Pension deduction based on Sub Total 2
- Employment Insurance deduction based on Sub Total 1
- Income tax withheld based on total of A+C+D-E (sub total 2)
* Clergy Residence Deduction must be calculated using CRA form T1223