# salary tax rate and shares



## ali90 (Apr 15, 2016)

I have 2 questions. 

First
If my pay as per company is 100K an anum but I came to the country in July and will be filing taxes in December (I assume), it means that I earned around 50K because my earned income was 50K even though the documented is 100K. The company deducts taxes before paying me salary, when I do filing in the end of year will I get a refund based on a different tax rate?

Second:
I work for a private company, is there a trend in Canada to ask for shares from employer rather than salary (some percentage mix), and then I can sell the shares? Will this save some money on taxes? or it is only possible with multi nationals or not possible at all?

Thanks


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## Numbersman61 (Jan 26, 2015)

ali90 said:


> I have 2 questions.
> 
> First
> If my pay as per company is 100K an anum but I came to the country in July and will be filing taxes in December (I assume), it means that I earned around 50K because my earned income was 50K even though the documented is 100K. The company deducts taxes before paying me salary, when I do filing in the end of year will I get a refund based on a different tax rate?
> ...


First question - yes, you'll likely get a refund when you file your tax return
Second question- the time to discuss share compensation is before you start; not after. I suggest you wait a few years and see how things work out. Share compensation in a private company has many complications - tax and valuation issues. Many private companies reward employees with bonuses - depends on the size of the company and the views of the owners. There can be tax advantages to share compensation plans but there can be significant legal and accounting costs in designing and implementing the plan.


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## Eclectic12 (Oct 20, 2010)

Numbersman61 said:


> ali90 said:
> 
> 
> > ... If my pay as per company is 100K an anum but I came to the country in July and will be filing taxes in December (I assume), it means that I earned around 50K because my earned income was 50K even though the documented is 100K. The company deducts taxes before paying me salary, when I do filing in the end of year will I get a refund based on a different tax rate?
> ...


It is possible ... but I doubt it will work out this way. Or it may work out to a smaller number than the OP is thinking.

The OP says $50K of the annual salary was paid so the annual salary will factor into the computer programs to set the correct amount of tax *per pay cheque*. The net result of this should be that the amount of tax deducted should line up with the $50K employment income paid. 

It is true that when the final 2016 tax return is filed, a reconciliation will happen. Should the amount of income tax sent to the gov't end up being higher than what the final income works out to - then there will be a refund. 

Keep in mind that there was actions the employee can take on their own, without the employer's knowledge that will reduce the taxable employment income. Examples include but are not limited to RRSP contributions, charitable donations and political party donations.

From the description ... I don't see how the company would mess up to the point of deducting income tax for double of what the employment income that was paid. 



BTW ... the OP should learn about the Canadian tax system. 

The 2016 tax year is from Jan 1st to Dec 31st, 2016 but the employer is not required to provide the T4 slip that lists what was paid, what was sent to the gov't etc. until end of Feb 2017. Unless one fits an exception, individual tax return are due on or before April 30th, 2017.

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/menu-eng.html 


One can ask in this forum or there are usually good introductory tax books in the library one can borrow or one can hire someone to do the first few returns until one learns how to do it. (The software programs now available have made filling out tax returns far more easier for a lot of people.)





ali90 said:


> ... I work for a private company, is there a trend in Canada to ask for shares from employer rather than salary (some percentage mix), and then I can sell the shares? Will this save some money on taxes? or it is only possible with multi nationals or not possible at all?


Shares have historically been more to keep executives staying with the company. Typical plans require the executive to stay with the company say three years to be eligible for the stock, another three years to buy the stock and another three years before being able to sell the stock.

The tech bubble leading to the crash around 2000 expanded stock options to many more employees.

If your company offer this, read the details carefully. I've had friends who had a great employer stock plan. They signed up every six months where the employer guaranteed a gain (if the stock dropped, they would buy at a discount to ensure a set % gain) and they could sell the day they bought. Most plans are not this generous, where like the executive plan mentioned above ... lock on in for a long time before one can sell.


As indicated by Numbersman61 - there can be significant tax implications. My advice would to learn the Canadian tax system then the specific implications for company stock first. I have other friends who didn't bother and then were unhappy that they had to pay taxes on employer granted stock that was a big loser.

http://www.taxplanningguide.ca/tax-planning-guide/section-1-businesses/the-taxation-stock-options/




Cheers


*PS*

Another risk to company - employee stock plans is that some were overconfident in their employer's continued success. Where they had huge $$$ had they sold some, they ended up with few $ when the company tanked. Where one ends up with company stock, one should make sure to move some $$ to other investments, the same as having too much in one company in one's personal investment portfolio.


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## mordko (Jan 23, 2016)

1. yes, assuming you had no income prior to July. Your worldwide income for the year has to be reported, not just since you came to Canada.

2. Really depends on your level within the company.


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## Eclectic12 (Oct 20, 2010)

mordko said:


> 1. yes, assuming you had no income prior to July. Your worldwide income for the year has to be reported, not just since you came to Canada.


Good point ... though I am not sure where the idea that "for the year" world wide income matters for a newcomer.



> Date of entry in Canada
> 
> When completing this area on your return, enter the date you became a resident of Canada for income tax purposes.
> 
> ...


http://www.cra-arc.gc.ca/newcomers/#whtr


CRA seems to be telling newcomers that before their date of tax residency, world wide income is not included.



Cheers


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## Market Lost (Jul 27, 2016)

ali90 said:


> I have 2 questions.
> 
> First
> If my pay as per company is 100K an anum but I came to the country in July and will be filing taxes in December (I assume), it means that I earned around 50K because my earned income was 50K even though the documented is 100K. The company deducts taxes before paying me salary, when I do filing in the end of year will I get a refund based on a different tax rate?
> ...


"an anum"!?!?! :hororr:

I think you mean "per annum", but hey, whatever floats your boat. 

You will likely get a refund, since they will be following the standard deduction tables. You can ask for whatever compensation you want, but outside of tech startups or if you're a senior executive, you are about as likely to get company stock as you are to get 8 weeks vacation.


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## Eclectic12 (Oct 20, 2010)

As the OP is new to Canada and with the way the question was worded - it may be that the OP is anticipating the least likely of the scenarios I can think of. This is where income tax is deducted as if a full year was worked.

The annual salary is $100K and the worked time is half that, worth $50K. As the OP may or may not be aware, the tax levels are tied to what amount of income was paid. 

If I use the Ontario 2016 tax rates available at Tax Tips here http://www.taxtips.ca/taxrates/on.htm,
the $50K salary is going to involve three tax rates of 20.05% for the first $41,536 then 24.15% on the dollars paid from over $41,536 up to $45,282 and finally 29.65% from over $45,282 up to the $50K (the actual range ends at $73,145 but the job stops paying at $50K). 

My rough estimate is that the Federal and provincial tax bill will add up to about $10,632.


If the salary is $100K, additional tax rates kick in so that the income tax looks to be around $27,431.



Now the for the scenarios.

If the full income tax for the $100K is sent, it would take someone in payroll looking at what should be deducted for each pay period and *doubling* it. It would need to be doubled as half the number of pays are being done. As it needs an extra step for the doubling - I don't see this as likely.


The payroll person could look at the tables for year and assign the pay period amount for the $100K salary. Applying the per pay period amount should mean half of the $27,431 is sent (or $13,715 or so). This is higher than the $50K income tax by about $3,100. The final tax return to be filed before April 2017 without any additional credits or deductions will reconcile this to generate a refund.


If the company is using a computerised payroll system or service - likely the system would have dates then estimate the yearly salary. It should mean a lot close to the $50K salary income tax level.



One can ask the payroll department directly about it. Or is there are pay slips that list the income tax for this pay period and income tax year to date,
one should be able to see from the Dec pay slip.


Cheers


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## Market Lost (Jul 27, 2016)

Eclectic12 said:


> If the company is using a computerised payroll system or service - likely the system would have dates then estimate the yearly salary. It should mean a lot close to the $50K salary income tax level.
> 
> Cheers


It's been a few years since I did taxes, but there were no payroll systems I ran across that would account for a stub year when I was practicing. They all use the standard deduction calculations, which are available here - http://www.cra-arc.gc.ca/esrvc-srvce/tx/bsnss/pdoc-eng.html

It's certainly possible to have a computer program account for this, but payroll departments don't normally go out of their way to pro rate deductions.


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