OCCASIONAL EARNINGS (OTHER EMPLOYMENT INCOME)
What are occasional earnings?
The phrase “other employment earnings” is not a statutory term in the Income Tax Act. It’s an administrative reporting category on the tax return, used to funnel a variety of income sources into the employment income bucket defined by the Act. Income from these sources is added together and reported on Line 10400.
One such source is referred to by the CRA as “occasional earnings” from “occasional employment” not reported on a T4 slip. These are also not statutory terms in the Income Tax Act.
The CRA administratively carves out casual earnings as a separate category because of rules in the Canada Pension Plan Act and the Employment Insurance Act. These acts require individuals to make CPP and EI contributions on employment and self-employment earnings. However, contributions are not required when the income is from “employment of a casual nature otherwise than for a purpose of the employer’s trade or business.”.[1] In other words, for employment that is irregular, infrequent, short-term, and not related to the employer’s usual business activities.
A CRA web page gives examples of what does and doesn’t fall under this wording:
Example of employment that is pensionable and insurable:
A florist hires a worker under a contract of service (an employer-employee relationship) to paint the outside of the florist’s shop. The work is done on an infrequent basis with no set schedule or time; therefore the employment is considered to be casual. However, the employment is necessary and desired, and it directly benefits the florist’s business, therefore, the employment is considered to be for the purpose of the employer’s trade or business. Since only one of the two conditions for casual employment is met, the employment is pensionable and insurable, unless another provision of the CPP and/or EI legislation makes it not pensionable and/or insurable.
Example of employment that is not pensionable or insurable:
A florist hires a worker under a contract of service (an employer-employee relationship) to paint the outside of a florist’s personal residence, on an infrequent basis with no set schedule or time. The employment is casual and does not directly or indirectly benefit the florist’s business. Therefore, the employment meets the two conditions for casual employment, and the employment is not pensionable or insurable.
Entering casual employment income in UFile:
In the section T4 and employment income, click the + next to Other employment income. Enter the earnings under description and amount of other employment income.
What is the significance of $3,500?
A tax clinic may have a policy that casual earnings reported as “Other Employment Income” should not exceed $3,500. This figure is important because CPP contributions are calculated only on total employment and self-employment income above $3,500.
For example, if someone reports $10,000 of “Other Employment Income” and has no T4 or self-employment income, UFile will show no CPP or EI contributions owing.
If the same $10,000 is reported instead as regular employment income or self-employment income, UFile will generate a Schedule 8 to calculate the CPP contribution. This will reduce a refund or increase a balance owing (although at the same time, the contribution could increase future CPP retirement benefits).
In some cases, it can be unclear whether income is from regular employment, casual employment, or self-employment—for instance a babysitter providing periodic services to a family. If the income is $3,500 or less, the determination doesn’t make a practical difference because regardless of the characterization, no CPP contribution is required.
If, however, the income is over $3,500 this could trigger an inquiry by the CRA as to the source and nature of the earnings. The CRA doesn’t want people avoiding CPP contributions, and expects a T4 to be issued for non-casual employment or a T2125 to be completed for self-employment.
How is it possible to earn casual employment income and not receive a T4?
If an employee is paid more than $500 in a calendar year, the employer must issue a T4 slip—even if the work was casual in nature or the total earnings were less than $3,500.
In practice, however, people often hire someone for occasional work without issuing a T4. In many of these situations, it can be unclear whether the arrangement is truly an employer–employee relationship or more accurately classified as self-employment—though it is often the latter.
For smaller amounts, especially $3,500 or less, the CRA generally allows the income to be reported as “other employment income” and tends to overlook the question of employment versus self-employment status and the fact that no T4 was issued. If the CRA suspects the omission of a T4 is deliberate payroll avoidance by the payer, they may investigate.
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