Watch box 14 on your T4
If you're an employee, chances are that by now you have already received your 2009 T4 slip reporting your employment income, taxable benefits and various source deductions withheld by your employer last year. The T4 final deadline is on Monday. But have you ever paid close attention to what's actually included in Box 14, "Employment Income," on your T4?
Typically, it's simply your total annual employment income. But it can sometimes be to your advantage to dig a little deeper to ensure that not only the amount is correct, but also that the correct amounts have been attributed to the proper calendar years.
A tax case decided this month dealt specifically with this issue.
Ludmila Ziobrowska began working for Statistics Canada on Dec. 4, 2006, and worked 37.5 hours a week for $18.50 an hour. Presumably, due to a delay in formally getting enrolled on the payroll system, StatsCan gave her two cheques marked "salary advances" in 2006 -- one for $700 and the other for $900, both of which Ms. Ziobrowska cashed.
Had Ms. Ziobrowska waited until she was properly set up on the payroll system to receive her first pay-cheque, she would not have been paid until sometime in January 2007.
The issue in the case was whether the $1,600 she received in 2006 was received as a payroll "advance" or "loan" from her employer to be included in her 2007 income or, rather properly, included as income for 2006 -- the year the work was done and the year of payment.
When the formal payroll started in January 2007, Ms. Ziobrowska's first several paycheques did indeed include the pay for December, but because she had already received $1,600 in "advances," this amount was deducted from her net pay, spread out over several 2007 paycheques.
Ms. Ziobrowska's position was that since she worked in 2006 and was paid in 2006, she should also be taxed on that income in 2006, presumably because her income for 2006 put her into a lower tax bracket than she was in for 2007.
CRA disagreed and said the amounts received in 2006 were merely "loans" StatsCan advanced to her and therefore taxable only in 2007. To back this up, it relied on the fact StatsCan did not issue a T4 to her at all for 2006, but only for 2007 and included on that slip the "advances" paid to her in December 2006.
The judge found that the amount should not have been taxed in 2007, despite her T4 slip, but rather taxed in 2006. As he wrote: "It does not seem to me that the $1,600 was a loan but was compensation that she had earned and that she had received for services rendered, albeit earlier than she would have received it under the regular payroll system."