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COMPENSATION DIRECTIVE: 2006-035
December 5, 2006
Information Notice to Employees
| SUBJECT: |
Changes to the Net Pay Amount Commencing January 2007 |
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1 |
PURPOSE |
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1.1 |
The purpose of this directive is to provide clients with information about changes in the net amount of pay commencing with the first pay of January 2007. |
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1.2 |
A notice of information to employees concerning the above has been included with this Compensation Directive and will also be posted in the "Who are you? - Public Service Employee" page of the Compensation Sector Web site.
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2 |
BACKGROUND |
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2.1 |
Each new year, compensation advisors must respond to queries from employees about changes in the net pay amount on the first pay in January compared to the last pay in December. |
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2.2 |
To assist clients in explaining these differences to their employees, this directive is issued on a yearly basis to advise them of the factors that may cause fluctuations.
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3 |
PROCEDURES/INSTRUCTIONS |
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3.1 |
The following factors may affect an employee's net pay: |
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(a) PSPP, CPP and QPP Contributions |
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At the beginning of each year, the lowest rate of the two possible rates of contribution to the Public Service Pension Plan (PSPP) is used until the maximum level of contribution for that rate is reached. Then, the higher rate of contribution is used for the remainder of the year. Beginning with the new year, PSPP contributions recommence at the low rate, until such time as they reach the maximum level of the contributions for the low rate. |
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Therefore, if employees who are contributors under the PSPP compare their last pay in December to their first pay in January, many of them will see that they have paid a larger amount of PSPP in December than in January. |
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For the calendar year 2007, the contribution rate will increase by 0.3%. Effective January 1, 2007, PSPP contributions will be 4.6% (to a maximum of $2010.20 for the 2007 taxation year) on all pensionable earnings below and equal to the yearly maximum pensionable earnings (YMPE) ($43,700 for the 2007 taxation year) and 8.1% on all pensionable earnings over the YMPE. |
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Contributions to PSPP have a direct bearing on the income tax deducted at source since these contributions are deducted from the gross pay before determining the tax rate. Once the contributions reach the maximum PSPP low level, the contributions to PSPP will increase from 4.6% to 8.1%. The larger the PSPP contribution, the less income tax will be withheld from the employee's pay. |
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Many employees reach their maximum level of Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) contributions sometime during the year. When this happens, the employee will see an increase in the net pay amount as there will no longer be CPP/QPP deductions withheld. Beginning with the new year, employees recommence paying CPP/QPP contributions until such time as they reach the maximum CPP/QPP contribution level for 2007. |
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The CPP and QPP rate, effective January 1, 2007, remains at 4.95% of pensionable earnings. The maximum CPP/QPP contribution is $1,989.90 for the 2007 taxation year. |
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The CPP contributions provide a federal tax credit of 15.5%. This tax credit is applied directly to the income tax that is owing and is not dependent on the employee's income tax bracket. Please note that the Quebec Tax Reform eliminated the Quebec provincial tax credit for QPP effective January 1, 1998. The tax credit for QPP is now included in the basic credit amount of $9,750 for the 2007 taxation year. |
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(b) Employment Insurance (EI) Premiums |
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The employee's rate of EI premiums (excluding employees working in the province of Quebec), for the 2007 taxation year will be decreased from 1.87% to 1.80%. The annual maximum insurable earnings will be increased from $39,000 to $40,000. Those employees who had reached their maximum EI premiums during the previous year will recommence paying EI premiums in the new year until the maximum premium level is reached. Once employees reach the annual maximum premium deduction of $720.00 in 2007, they will see an increase in the amount of their net pay as there will no longer be EI deductions withheld. |
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The employee's rate of EI premiums, for employees working in the province of Quebec for the 2007 taxation year will be decreased from 1.53% to 1.46%. The annual maximum insurable earnings will be increased from $39,000 to $40,000. Those employees who had reached their maximum EI premiums during the previous year will recommence paying EI premiums in the new year until the maximum premium level is reached. Once employees reach the annual maximum premium deduction of $584.00 in 2007, they will see an increase in the amount of their net pay as there will no longer be EI deductions withheld. |
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(c) Quebec Parental Insurance Plan (QPIP) |
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Effective January 1, 2007, the employee's QPIP premium rate will remain at .0416% of insurable earnings. The annual maximum insurable earnings will be increased from $57,000 to $59,000. Those employees who had reached their maximum QPIP premiums during the previous year will recommence paying QPIP premiums in the new year until the maximum premium level is reached. Once employees reach the annual maximum premium deduction of $245.44 in 2007, they will see an increase in the amount of their net pay as there will no longer be QPIP deductions withheld. |
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(d) Federal Tax Brackets and Rates Effective January 1, 2007 |
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The federal income tax table has changed effective January 1, 2007, as follows: |
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Federal Tax Brackets and Rates
(indexing factor 2.2%) |
Tax Brackets and Rates Effective
January 1, 2006 |
Tax Brackets and Rates Effective
January 1, 2007 |
| Tax Brackets ($) |
Tax Rates |
Tax Brackets ($) |
Tax Rates |
| More than - Not more than |
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More than - Not more than |
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| 0 to 36,378 |
15.5% |
0 to 37,178 |
15.5% |
| 36,378 to 72,756 |
22% |
37,178 to 74,357 |
22% |
| 72,756 to 118,285 |
26% |
74,357 to 120,887 |
26% |
| Over 118,285 |
29% |
Over 120,887 |
29% |
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(e) Provincial and Territorial Tax Brackets and Rates Effective January 1, 2007 |
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Prince Edward Island |
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There are no changes to the tax brackets or rates. |
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Newfoundland and Labrador |
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There are no changes to the tax brackets or rates. |
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Nova Scotia |
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There are no changes to the tax brackets or rates. |
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Alberta |
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There are no changes to the tax brackets or rates. |
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New Brunswick |
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The provincial income tax table has changed effective January 1, 2007, as follows: |
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New Brunswick Tax Brackets and Rates
(indexing factor 2.2%) |
Tax Brackets and Rates Effective
January 1, 2006 |
Tax Brackets and Rates Effective
January 1, 2007 |
| Tax Brackets ($) |
Tax Rates |
Tax Brackets ($) |
Tax Rates |
| More than - Not more than |
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More than - Not more than |
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| 0 to 33,450 |
9.68% |
0 to 34,186 |
9.68% |
| 33,450 to 66,902 |
14.82% |
34,186 to 68,374 |
14.82% |
| 66,902 to 108,768 |
16.52% |
68,374 to 111,161 |
16.52% |
| Over 108,768 |
17.84% |
Over 111,161 |
17.84% |
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Manitoba |
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The provincial income tax table has changed effective January 1, 2007, as follows: |
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| Manitoba Tax Brackets and Rates |
Tax Brackets and Rates Effective
January 1, 2006 |
Tax Brackets and Rates Effective
January 1, 2007 |
| Tax Brackets ($) |
Tax Rates |
Tax Brackets ($) |
Tax Rates |
| More than - Not more than |
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More than - Not more than |
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| 0 to 30,544 |
10.9% |
0 to 30,544 |
10.9% |
| 30,544 to 65,000 |
13.5% |
30,544 to 65,000 |
13% |
| Over 65,000 |
17.4% |
Over 65,000 |
17.4% |
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Ontario |
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The provincial income tax table has changed effective January 1, 2007, as follows: |
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Ontario Tax Brackets and Rates
(indexing factor 2.1%) |
Tax Brackets and Rates Effective
January 1, 2006 |
Tax Brackets and Rates Effective
January 1, 2007 |
| Tax Brackets ($) |
Tax Rates |
Tax Brackets ($) |
Tax Rates |
| More than - Not more than |
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More than - Not more than |
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| 0 to 34,758 |
6.05% |
0 to 35,488 |
6.05% |
| 34,758 to 69,517 |
9.15% |
35,488 to 70,976 |
9.15% |
| Over 69,517 |
11.16% |
Over 70,976 |
11.16% |
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The provincial surtax payable has been revised as follows: |
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Where the basic provincial tax payable is less than or equal to $4,100 (formerly $4,016), the surtax payable is $0. |
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Where the basic provincial tax payable is greater than $4,100 and less than or equal to $5,172 (formerly $5,065), the surtax payable is 20% of the basic provincial tax payable in excess of $4,100. |
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Where the basic provincial tax payable is greater than $5,172, the surtax payable is the total of 20% of the basic provincial tax payable in excess of $4,100 and 36% of the basic provincial tax payable in excess of $5,172. |
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Saskatchewan |
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The provincial income tax table has changed effective January 1, 2007, as follows: |
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Saskatchewan Tax Brackets and Rates
(indexing factor 2.2%) |
Tax Brackets and Rates Effective
January 1, 2006 |
Tax Brackets and Rates Effective
January 1, 2007 |
| Tax Brackets ($) |
Tax Rates |
Tax Brackets ($) |
Tax Rates |
| More than - Not more than |
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More than - Not more than |
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| 0 to 37,579 |
11% |
0 to 38,405 |
11% |
| 37,579 to 107,367 |
13% |
38,405 to 109,729 |
13% |
| Over 107,367 |
15% |
Over 109,709 |
15% |
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British Columbia |
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The provincial income tax table has changed effective January 1, 2007, as follows: |
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British Columbia Tax Brackets and Rates
(indexing factor 1.9%) |
Tax Brackets and Rates Effective
January 1, 2006 |
Tax Brackets and Rates Effective
January 1, 2007 |
| Tax Brackets ($) |
Tax Rates |
Tax Brackets ($) |
Tax Rates |
| More than - Not more than |
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More than - Not more than |
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| 0 to 33,755 |
6.05% |
0 to 34,397 |
6.05% |
| 33,755 to 67,511 |
9.15% |
34,397 to 68,794 |
9.15% |
| 67,511 to 77,511 |
11.7% |
68,794 to 78,984 |
11.7% |
| 77,511 to 94,121 |
13.7% |
78,984 to 95,909 |
13.7% |
| Over 94,121 |
14.7% |
Over 95,909 |
14.7% |
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Quebec |
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The provincial income tax table has changed effective January 1, 2007, as follows: |
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Quebec Tax Brackets and Rates
(indexing factor 2.026%) |
Tax Brackets and Rates Effective
January 1, 2006 |
Tax Brackets and Rates Effective
January 1, 2007 |
| Tax Brackets ($) |
Tax Rates |
Tax Brackets ($) |
Tax Rates |
| More than - Not more than |
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More than - Not more than |
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| 0 to 28,710 |
16% |
0 to 29,290 |
16% |
| 28,710 to 57,430 |
20% |
29,290 to 58,595 |
20% |
| Over 57,430 |
24% |
Over 58,595 |
24% |
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Yukon |
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The territorial income tax table has changed effective January 1, 2007, as follows: |
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Yukon Tax Brackets and Rates
(indexing factor 2.2%) |
Tax Brackets and Rates Effective
January 1, 2006 |
Tax Brackets and Rates Effective
January 1, 2007 |
| Tax Brackets ($) |
Tax Rates |
Tax Brackets ($) |
Tax Rates |
| More than - Not more than |
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More than - Not more than |
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| 0 to 36,378 |
7.04% |
0 to 37,178 |
7.04% |
| 36,378 to 72,756 |
9.68% |
37,178 to 74,357 |
9.68% |
| 72,756 to 118,285 |
11.44% |
74,357 to 120,887 |
11.44% |
| Over 118,285 |
12.76% |
Over 120,887 |
12.76% |
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Northwest Territories |
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The territorial income tax table has changed effective January 1, 2007, as follows: |
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Northwest Territories Tax brackets and Rates
(indexing factor 2.2%) |
Tax Brackets and Rates Effective
January 1, 2006 |
Tax Brackets and Rates Effective
January 1, 2007 |
| Tax Brackets ($) |
Tax Rates |
Tax Brackets ($) |
Tax Rates |
| More than - Not more than |
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More than - Not more than |
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| 0 to 34,555 |
5.9% |
0 to 35,315 |
5.9% |
| 34,555 to 69,110 |
8.6% |
35,315 to 70,631 |
8.6% |
| 69,110 to 112,358 |
12.2% |
70,631 to 114,830 |
12.2% |
| Over 112,358 |
14.05% |
Over 114,830 |
14.05% |
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Nunavut |
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The territorial income tax table has changed effective January 1, 2007, as follows: |
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Nunavut Tax Brackets and Rates
(indexing factor 2.2%) |
Tax Brackets and Rates Effective
January 1, 2006 |
Tax Brackets and Rates Effective
January 1, 2007 |
| Tax Brackets ($) |
Tax Rates |
Tax Brackets ($) |
Tax Rates |
| More than - Not more than |
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More than - Not more than |
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| 0 to 36,378 |
4.0% |
0 to 37,178 |
4.0% |
| 36,378 to 72,756 |
7.0% |
37,178 to 74,357 |
7.0% |
| 72,756 to 118,285 |
9.0% |
74,357 to 120,887 |
9.0% |
| Over 118,285 |
11.5% |
Over 120,887 |
11.5% |
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3.2 |
Clients are reminded that each individual's own personal income situation is unique. While the above factors will assist you in your explanation, there are many other factors that may have an effect on the employee's net pay. Some of the factors to consider are changes to the employee's province of work or residence, salary, deductions, taxable allowances and benefits, personal credits, and hardship exemptions. |
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3.3 |
Change in province of work |
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The income tax deducted from an employee's pay is based on the employee's province of work. In some situations, when an employee changes his province of work, his tax liability may be such that he owes the Canada Revenue Agency (CRA) and/or the "Ministère du Revenu du Québec" (MRQ) at year end. |
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Employees who change their province of work at any time during the year are encouraged to review their personal tax situation in order to be aware of their tax liability upon filing at year end. |
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Employees who wish to have more federal and/or Quebec income tax deducted may do so by completing a 2007 Personal Tax Credits Return, form TD1 E (07) and/or, for the province of Quebec, a "Source Deductions Return 2007", form TP-1015.3-V (2007-01), and providing this documentation to their compensation advisor. For all provinces and territories, with the exception of Quebec, the deduction of additional income tax will continue to be administered by CRA. Please refer to Compensation Directive 2002-012, dated March 26, 2002, entitled Deductions at Source of Additional Income Tax.
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4 |
INQUIRIES |
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4.1 |
Any inquiries on the information contained in this directive should be addressed to your Public Works and Government Services Canada (PWGSC) Compensation Services Office.
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Original Signed by
B. Fortin |
Brigitte Fortin
Acting Director General
Compensation Sector
Accounting, Banking and Compensation
Reference(s): CJA 9007-7, 9007-8
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[Print Version]