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As an accountant who handles payroll, (among other things) for smaller and midsize companies, I've noticed a definite trend. Business owners are paying their managers smaller salaries, while offering a bonus for achieving a previously stated goal, (usually a sales target, or an increase in profits for a division, etc.). This setup works well for the business owner since they only have to pay, if they're making more money. The employee is usually satisfied with the arrangement, since they now have something to motivate them to meet their goals; money!. Another trend I've noticed is these same employees are getting their bonus' paid out to them, along with their salaries. By doing this they are immediately losing upwards of 48% of the bonus to federal withholding taxes. This is ludicrous!!!!!! Once the taxman has it, you'll never get it back. EXAMPLE: Mr. H gets a bonus, two ways to put it into his RRSP
*-assuming the top N.S. marginal tax rate of 48.25% Clearly, the only solution to this tax carnage is to have the employer rollover the bonus directly into the employees RRSP. Which means NO withholding tax at source, and the employee gets an RRSP contribution for the full amount. Granted this contribution won't result in a tax refund, because the employee also gets T4A'd for the bonus. So what? They never paid tax on the bonus in the first place. When you consider the average Canadian "uses up" less than half of the new RRSP contribution room they create each year, here's a perfect opportunity to use up a big chunk of that room. Not to mention they'll have their money growing tax-deferred, inside the RRSP NOW, as opposed to the end of the following February. You see most Canadians wait until the last minute to contribute to their RRSP's, and a large portion of them borrow the money from the bank to do it. Another mistake, but that's a topic for some other day. Now I've heard people say my employer won't allow us to make direct transfers to our RRSP's. Truth is that these employers, (either through laziness or sheer ignorance), just say they don't allow it because they think CRA will come after them for the taxes. OR they think it will result in a lot of paperwork. Neither of which is true. The rollover is simple: you fill out CRA Form - TD2(98). It stipulates the employees information, the name of the employer, and the name, address, & registered account number of the RRSP issuer, (bank, mutual fund co., etc.). This form is then sent with the employers' monthly payroll remittance to CRA, along with a copy of the cheque that was sent directly to the RRSP issuer. As long as the employer does this, their butts are covered. If you fill out the form and take it to your employer, it will give them one less reason to say no. If your employer still says no keep on them. After all its to their advantage as well. |
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