Fact Sheet

January, 2000
Updated - January 2003

Non-employment income and Voluntary Tax Deductions

Individuals who receive income from more than one source may find that they have taxes to pay when they file their income tax return. This can happen if they receive income that has no tax withheld or not enough tax withheld at source. This is often the case for individuals who receive Canada Pension Plan (CPP), Quebec Pension Plan (QPP), or Old Age Security (OAS) benefits in addition to other pension, interest, employment, or self-employment income.

For anyone applying for CPP, QPP or OAS benefits, it is important to understand that the addition of this income could mean they will owe taxes when they file their next income tax return. To determine this, they should calculate what their tax liability will be for the year. If they expect to have to pay tax, they may find it convenient to arrange to have tax withheld from their CPP benefits, or they can increase the amount that is already withheld on another source of income.

Clients who need help calculating their tax liability should contact their tax services office. For identification purposes, they may be asked to provide their social insurance number, date of birth, and the total income amount they reported on line 150 of their last tax return. This information is also necessary if the enquiries agent needs to access their personal tax information.

To arrange to have income tax withheld from CPP, QPP or OAS benefits, clients should contact their local Human Resources Development Canada (HRDC) office to obtain and complete Form ISP-3520, Request for Income Tax Deductions. Alternately, clients can obtain and complete the CCRA Form TD1, Personal Tax Credits Return, and send it to the Income Security Programs office at HRDC. The clients must complete the section entitled, "Additional tax to de deducted" on the back of Form TD1. They should also indicate the type of payment they are receiving. To arrange to have additional tax withheld from employment income, clients must complete Form TD1 and give it to their pay office. The TD1 form is available from any tax services office.

For more information, contact:

Canada Customs and Revenue Agency
Tax services office
Tel.: 1-800-959-8281

Human Resources Development Canada
Income Security Programs office
Tel.: 1-800-277-9914

Examples

Example 1

In 1997, this single taxfiler's total income was $13,130 from disability pensions. He did not qualify for the income tax disability amount or the age amount, and had no taxes withheld at source. He owed $1,833 on filing ($1,137 in federal taxes and $696 in provincial taxes).

This individual would not have had taxes owing if he had $150 withheld at source from his monthly pension.

This individual reported the following income:

She claimed the basic exemption, the age exemption, and the $1,000 pension income amount. Her employment pension had income tax deducted from her monthly payment totaling $250. She did not have taxes withheld on the CPP and OAS pensions. When she filed her tax return, she owed $1,840 (federal taxes of $1,297 plus provincial taxes of $793 less the taxes withheld on the pension income $250).

This individual would not have had additional taxes owing if she had a total of $155 withheld monthly from her CPP pension payments.

Example 3

This individual reported the following income:

Canada Pension $10,052
Old Age Pension $399
Other pension income (employment pension) $8,524
Total income $25,999

He claimed the basic exemption, the age exemption, and the $1,000 pension income amount. His employment pension had income tax deducted from his monthly payment totaling $1,787. He did not have taxes withheld on the CPP and OAS pensions. When he filed his tax return, he owed $2492 (federal taxes of $2,640 plus provincial taxes of $1,640 less the taxes withheld on the pension income $1,787).

This individual would not have had additional taxes owing if he had a total of $208 withheld monthly from his CPP pension.

Example 4

This individual reported the following income:

Employment income $247
Other pension income (employment pension) $32,529
Canada Pension $5,749
Total income $38,525

He claimed the basic exemption, the age exemption, the pension deduction. His employment income and pension had income tax deducted totaling $7,844. He did not have taxes withheld on the CPP and OAS pensions. When he filed his tax return, he owed $2,299 (federal taxes of $6,256 plus provincial taxes of $3,887 less the taxes withheld on the pension and employment income of $7,844).

This individual would not have had additional taxes owing if he had $190 withheld from his monthly CPP payments.