Nanny Know-How & The CRA

You have hired a nanny and now is the time to be aware of the tax implications. You have taken on a new role as an employer which entails following certain guidelines as set out by the Canada Revenue Agency (CRA). These guidelines require you, as an employer, to file your employee’s annual T4 and remit payroll source deductions each month. Easy enough!

If you are feeling overwhelmed by the new task at hand – please don’t. Perhaps you have just given birth, or raising a child, managing your home renovations, or, receiving an education? Maybe you are doing these things simultaneously? Whatever your individual situation, it is important to take a step back and put your competency into perspective.

Listed below are the items I recommend you familiarize yourself with. Doing so, will ensure you take on the administrative responsibility of your new employer position effectively and efficiently.

Business Number

Now that you are an employer, you can think of yourself as having a business. As such, the CRA requires you to obtain a Business Number (BN). This BN will enable you to register for your payroll deductions account, so that you can remit the payroll source deductions for your nanny each month.

You can apply for a BN by internet via the CRA website, by phone 1-800-959-5525 or by mail/fax by filling out Form RC1 – Request for a Business Number.

Remittances

Your new employer position requires that you deduct Canada Pension Plan (CPP), Employment Insurance (EI) and income tax from your employee. The 2011 rates are as follows:

CPP: For each of the employer and employee portion, CPP is calculated at 4.95% of pensionable earnings, up to a maximum of $2,217.60 for the 2011 taxation year. The first $3,500 of your nanny’s salary is CPP exempt.

EI: You have to deduct 1.78% of EI premiums from your employee’s salary to a maximum of $786.76 for the 2011 taxation year. The employer portion is 1.4 times the EI premiums you deducted from your employee each month up to a maximum of $1,101.46 for the 2011 taxation year. For example, if the EI employee portion is $100.000 for the month, then the employer portion you must remit is $140.00 ($100 employee portion multiplied by 1.4), resulting in a total EI remittance for the month of $240 ($100.00 + $140.00).

Income Tax: This will depend on the salary or wages of your employee for the pay period.

It is important to keep in mind that there is an employer and an employee portion to the taxes discussed above. The significance lies in the predetermined budget you have laid out for your nanny. If you are not mindful of these requirements, you may end up dishing out more than initially expected. The employer portion is an additional expense to you; over and above the salary you are paying your nanny. The employee portion is deducted from your employee’s gross salary (meaning your nanny ends up with less in his/her pocket).

There are resources available to assist you in calculating the correct amount of payroll deductions. One that I find helpful is the Payroll Deductions Online Calculator (PDOC) through the CRA website www.cra-arc.gc.ca.

Taxable Benefits

If your nanny lives with you, then the CRA considers the meals, board and lodging taxable benefits. As such, the value has to be included in your nanny’s gross income. The implication is that your payroll deductions are calculated on this topped up amount.

Due Dates

There are three categories of dates to be alert to this year. First, the monthly payroll deductions (EI, CPP, Income tax) which are due before the 15th day of the month following the month you made the deductions. For example, your deductions for January are due before February 15th of the following month. Be mindful of the CRA penalties and interest if the remittances are not paid within the specified time frame. Second, is the annual due date for your T4 information return which must be filed with the CRA no later than the last day of February following the year to which the information return applies. Finally, you must give your employee the annual T4 slip on or before the last day of February following the year to which the slips apply.

Other Things to Consider

In addition to the CRA tax obligations; there may be other things you will have to consider. For instance, your nanny’s entitlement to vacation pay, which must be at least 4% of gross wages earned in the 12 month vacation entitlement year. The minimum wage requirement, $10.25 per hour, under the Employment Standards Act, necessitates that an employee’s gross pay before any deductions must add up to at least the minimum wage for all hours worked. Furthermore, you may have to make WSIB payments for your nanny depending on the number of hours per you’re your nanny is employed for you. Finally, you may be entitled to claim the cost of childcare on your personal income tax return as discussed in future articles, leaving more money in your pocket for the early birthday gift you have been eyeing.

You are a success story – a parent, home keeper, employee, employer and master multi-tasker. In many circles you are superwoman! You hired a nanny to make your life easier. Ensure that this happens by staying on top of the administrative responsibilities. This will help reduce stress, enrich your new relationship with your nanny and ultimately provide your family with a calm and peaceful home environment.

Andrea Benaim, CA

For further tax or accounting advice visit www.andreabenaim.com or find her on Facebook.