# RRSP Direct Deposit



## SpikeTee (Apr 27, 2016)

Hey All, 

I was hoping some of you could possibly clarify something for me.

I've earned a commission on top of my salary, and would like for my employer to deposit directly into my RRSP account, rather than cut me a cheque.

Naturally, they are a bit hesitant because it is new to them and they generally go about it the usual of just doing the taxes and cutting a cheque. I was wondering if any of you have done this before and could advise me on what I could tell them?

They would like to know if there is a specific form they need to fill, or could it simply go onto the T4. Should they be doing the regular deductions, minus the taxes and if there is anything else that needs to be done on their end.

Thank you very much.


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## OptsyEagle (Nov 29, 2009)

I assume their concern would be calculating the proper withholding taxes etc., and whether it is legal or not.

I don't know how your employer goes about calculating withholding taxes and CPP/EI but I use CRA's own site here:

https://apps.cra-arc.gc.ca/ebci/rhpd/startLanguage.do?lang=English

In this site it is CRAs computer that is calculating the proper withholding taxes and CPP/EI. Your employer would simply add the bonus to the bi-weekly salary (assuming you are paid bi-weekly). Then they would enter the amount of money that you have authorized them to send to your RRSP. It indicates "deduct at source". This is telling the employer that they do not need to withhold tax on this RRSP amount. I believe CPP and EI is payable however and if so, is added to their total deductions.

Then all they need to do is send a cheque to the RRSP address and to the account that you have authorized. Even that is getting pretty relaxed these days. I have seen the federal government now pay out severances to the employee directly with nothing more then their promise that they will put it into their RRSP. In this case it was my brothers wife, who did NOT eventually put it in her RRSP and of course wondered later why she owed so much income tax when she filed the next year. That was the federal government themselves.

I think they realized that even if improper withholding taxes get calculated during a pay period it all gets fixed when everyone files their employer and employee tax returns. As long as your employer has something on file, indicating that the money is headed towards your RRSP, then the responsibility for taxes basically leaves them and drops onto you. If I was your employer I would probably want to cut a cheque payable to your financial institution, in trust for you with your RRSP account number. There is not really anything else that can happen to that cheque but go into your RRSP.


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## Eclectic12 (Oct 20, 2010)

SpikeTee said:


> ... I've earned a commission on top of my salary, and would like for my employer to deposit directly into my RRSP account, rather than cut me a cheque.... I was wondering if any of you have done this before and could advise me on what I could tell them?


The only direct deposit to an RRSP I have received from an employer is the proceeds from a pension that I was quitting when I changed jobs. I have had overtime deposited to the company Group RRSP ... but the employer contracted for that, where I would expect the banking connections were setup from day one.




SpikeTee said:


> ... They would like to know if there is a specific form they need to fill, or could it simply go onto the T4. Should they be doing the regular deductions, minus the taxes and if there is anything else that needs to be done on their end.


Strange questions ... when they cut a cheque, they already should have what needs to go on the T4 figured out. It is from the employer and is income so I don't see any way it could be anything other than recorded on the T4. It might have a different box number than regular income though.

Regardless of the method being a cheque or an EFT transfer to an RRSP, the income reporting/withholding taxes/deduction requirements should be the same. After all, the only change being talked about is method of payment.


It is your personal RRSP so I would expect there should be no special forms or changes to what they would have done when cutting a cheque. 

For a company offered Group RRSP, they can skip the withholding taxes as they have access to everything so they can prove to CRA it was an RRSP. I don't expect they would want to do the same for personal RRSPs but I don't know what CRA requires.


The bigger question IMO is does the RRSP provider allow EFT transfers directly to the RRSP?
If not or if your employer does not do EFT transfers ... then a cheque might be all that is possible.


Cheers


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## Eclectic12 (Oct 20, 2010)

OptsyEagle said:


> I assume their concern would be calculating the proper withholding taxes etc., and whether it is legal or not.


This is what makes no sense to me ... if the employer is concerned about this - won't they also be confused about what they are doing when cutting a cheque? Cheque or EFT ... it is still a commission with the same CRA requirements.

The only variable I can see from a CRA perspective is whether to skip the withholding taxes like a Group RRSP contribution offered through the employer would do.


If the employer wants to play it safe, it seems to me the way to do it is to make sure the same thing is done for an EFT transfer versus cutting a cheque. If the employer is confused as to what to do with a commission where they are cutting a cheque - that is a different issue.


Cheers


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## SpikeTee (Apr 27, 2016)

I have provided them with the address of my banking institution for them to send a cheque directly to.

I think their biggest concern in knowing what to withhold in this instance. I believe they want to clarify whether it was a T4 or T4A in this instance in particular.

Thank you for your responses so far. I will get this information over to them and see what they say.


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## Eclectic12 (Oct 20, 2010)

SpikeTee said:


> I have provided them with the address of my banking institution for them to send a cheque directly to.


Does the financial institution (FI) know what to do with it?

I have an ATM about a block from work and can use online access to make an online transfer from the bank account to my self-directed RRSP the same day as the ATM cheque deposit. So if I was the employee, I'd far prefer getting the cheque myself to avoid any slowdowns or confusion holding up the flow of the money.

If you are confident things will go smoothly, then fine but I have had all sorts of FI confusion doing what I thought were basic things. :biggrin:




SpikeTee said:


> ... I think their biggest concern in knowing what to withhold in this instance. I believe they want to clarify whether it was a T4 or T4A in this instance in particular.


Putting myself in the employer's shoes ... how do they know the cheque won't go into a bank account and miss going into the RRSP? If the withholding tax is skipped where this happens, won't that open them up to problems with CRA?

Without some proof it actually went into an RRSP, I don't see a grounds for skipping the withholding tax, which looks to me to be box 42 of the T4 form. Note that this is also included in box 14 "Employment Income" on the same T4 form.

CRA lists for commission employees here:
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/ncmtx/cmmssn-eng.html



> If you pay commissions periodically or the amounts fluctuate, you may want to use the bonus method to determine the tax to deduct from the commission payment.


Following the suggested link, one ends up here.
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/spcl/bnns-eng.html



> If you paid bonuses, retroactive pay increases, or any other additional or unusual amounts to your employees, you have to deduct the following amounts:
> Canada Pension Plan (CPP) contributions (without taking into consideration the annual basic exemption amount if the payment is made separately from their regular pay);
> employment insurance (EI) premiums; and
> income tax.


Lower down it lists RRSP contributions as something that can be subtracted from the payment "provided you have reasonable grounds to believe the contribution can be deducted by the employee for the year." 

This reduces things but does not appear to eliminate withholding taxes.


> After subtracting these amounts, if the total remuneration for the year, including the bonus or increase, is $5,000 or less, deduct 15% tax (10% in Quebec) from the bonus or retroactive pay increase.
> 
> After subtracting the above amounts, if the total remuneration for the year, including the bonus or increase, is more than $5,000, the amount you deduct depends on whether the bonus is paid once a year or more than once a year.


There are links to examples that CRA provides.


Maybe a copy of this question in the taxation section would attract the attention of those who do this for a living. So far, I see no reason to use a T4A form but as I have never received one, I am not 100% sure. 


Cheers


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## SpikeTee (Apr 27, 2016)

I have provided them with an account number, which is associated with my RRSP amount. When I spoke to CRA, they did mention using box 14 to identify the commission. I think if it's a direct deposit into the account that I have provided to them, they would only need to deduct the standard deductions. As long as they keep a copy of the cheque, would that be sufficient? As long it states the identical number stated in the T4 and in box 14?

I think they want to make this clean and smooth and not have to deal with any concerns that may arise after the fact, and I too want to ensure nothing comes up afterwards. 

Thank you for your help so far. Very much appreciated.


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## djkelly (Feb 18, 2016)

If your employer is currently cutting a cheque I'd imagine the first hurdle would be to get them to agree to a direct deposit. If they already do direct deposit then it's just a matter of giving them the appropriate account number. The amount they withhold should be the same if it' a cheque to you or a direct deposit.


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## OhGreatGuru (May 24, 2009)

If your employer doesn't know how to do it, I suggest you just take the after-deductions cheque; make your own RRSP contribution with it; and sort it out at tax time next year. Otherwise something is bound to get screwed up in the paperwork.

As noted by eclectic, how does your employer know how much RRSP contribution room you have this year?


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## Eclectic12 (Oct 20, 2010)

SpikeTee said:


> ... I think if it's a direct deposit into the account that I have provided to them, they would only need to deduct the standard deductions. As long as they keep a copy of the cheque, would that be sufficient?


If the employer takes the standard deductions, I don't see why they would need a copy of the cheque for CRA ... maybe for their own banking reconciliation purposes.

"Standard deductions" to me means what CRA says they should deduct plus any benefit/pension deductions (i.e the same as any other pay). This also means the RRSP contribution is not being factored into the employer deductions. Taking these should mean CRA has no reason to ask for anything other than proof of the calculations (i.e. calculation error), which the cheque would not be relevant for.

If the employer decides take into account that the cheque is going into an RRSP, the withholding for at minimum income tax is dropped, which would make the cheque relevant.




SpikeTee said:


> ... As long it states the identical number stated in the T4 and in box 14?


The way I read the box descriptions for the T4 and the links, it seems that box 42 "Employment Commissions" would have the one or more cheques for commission payments and box 14 would have the higher total of salary plus commissions.

The way box 42 would be equal to box 14 that would line up with this is if for some reason, they decided to issue two T4s where one is the salary income only (box 14 with no box 42) and one is the commission income only (box 42 equals box 14).


I am not a benefits/payroll expert so the employer should investigate the links, call CRA after the rush of the tax season slows down or consult whatever expert they are using.




SpikeTee said:


> ... I think they want to make this clean and smooth and not have to deal with any concerns that may arise after the fact, and I too want to ensure nothing comes up afterwards.


If they want to minimise the risk of future concerns, then they should ignore the RRSP bit and leave it to you. By doing so, the mistakes I can see them possibly making is incorrectly reporting the commission income and a wrong calculation for the withholding amount. I would expect that commission income is not new to the employer so these risks should be small/manageable.


The downside for you the employee is that instead of skipping the withholding taxes at the time it is paid, the most common situation would be for you to have it all balanced out when filing the tax return the following year. The balance may mean a refund.

Or if you are willing to do a small amount of effort and don't want to wait, you can fill out a T1213 "Request to Reduce Tax Deductions at Source - Year 201x" form. If CRA approves it, they will send you a letter approving a reduction in the withholding tax. You give it to your payroll, they adjust the withholding taken from future pays. The will give some or all of the tax refund to you during the year, as a higher after-tax income.

http://www.cra-arc.gc.ca/E/pbg/tf/t1213/README.html




SpikeTee said:


> ... Thank you for your help so far. Very much appreciated.


You are welcome.

Is the company payroll department small?
Having working for corporations, my experience is that this sort of stuff has usually been sorted out by a group of three or four company employees instead of what seems to be having you the employee work it out.


Cheers


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