Different processes must be followed depending on the nature of the payment and the type of relationship with the small business or individual. Being aware of the policies and processes prior to engaging the services of a small business or individual will reduce the possibility of delays in payment.
- When is a payment an Honorarium?
What is an honorarium?
The Canada Revenue Agency (CRA) criteria for honorarium payments include:
- They are nominal and are not reflective of the value of the work done;
- They are made to an individual for voluntary services for which fees are not legally or traditionally required;
- They are made on a one-time or non-routine basis to an individual as a “thank you”.
When is an honorarium appropriate?
Keeping the above criteria in mind, examples where an honorarium payment would be acceptable include:
- payment, as a “thank you” or gesture of goodwill and appreciation, to a non-professional;
- guest speaker or lecturer,
- external party for a special classroom lecture or short series of such lectures,
- individual for conducting a seminar or workshop,
- guest speaker at an educational event or other similar function,
- guest speaker participating at outreach events,
- payment to a volunteer for assistance for set-up or supporting activities at special events;
- payment to an external examiner whose services are engaged on a one-time or very infrequent basis.
When is a payment not an honorarium?
An honorarium is not based on an agreed to amount between the individual providing services and the University representative seeking services. If payment is agreed upon, this constitutes a contractual arrangement. This means that an employment or independent contractor (business) relationship exists.
An honorarium is not appropriate if the University is obtaining the services of a professional speaker or consultant who performs the requested service for a living. These individuals would be considered self-employed and should receive a fee for service or consulting payment.
Are honorariums subject to tax deductions?
Residents of Canada: An honorarium paid to a resident of Canada who is not an employee of the University is not subject to tax deductions; however, this does not mean that the recipient does not have to pay taxes on the amount received. The individual will be issued a T4A for the payment, and when they file their tax return for the year, any taxes owing on the amount paid will be assessed by the CRA. If the combined total paid to the individual by Carleton throughout the calendar year is less than $500, then a T4A is not issued.
Non-Residents of Canada: Where the service was performed in Canada, honorariums paid to non-residents of Canada are subject to a flat rate income tax deduction and are reported on a T4A-NR. If the service was performed outside of Canada, there is no tax deduction or reporting requirements.
- How do I pay a Small Business or Individual for Services?
In addition to adherence to the Procurement Policy, the following are required in order to pay a small business or individual:
- Independent Contractor Questionnaire (found in eShop)
- Confirmation of Information and Indemnification Agreement (listed alphabetically on Financial Services’ forms page)
- Full legal name
- Mailing Address
- Social Insurance Number or Registered Tax Identification Number (GST/HST/Business Number)
- An invoice
- Cheque Requisition Form OR Purchase Requisition Form (found in eShop)
The Independent Contractor questionnaire should be submitted prior to engaging with the individual or small business to determine whether they should be considered an employee (paid through Payroll) or an independent contractor (paid through Accounts Payable), as per the Canada Revenue Agency. The ‘Establishing eShop Contracts for Independent Contractors’ how-to sheet provides step by step instructions.
Documentation may be requested again if a significant period of time has elapsed since previous payments, or if the individual/Independent Contractor is being paid by a different department.
In the case of a taxable payment, a T4A will be issued after the completion of the calendar year.
- How do I pay a Non-Resident?
Specific rules apply for Non-Residents of Canada. Withholding taxes will be deducted as required by the Canadian Revenue Agency for work performed within Canada. For more information, contact the Accounts Payable Supervisor.
For Non-Canadian Residents, a T4A-NR slip will be issued for taxable payments.
- How does a visiting individual apply to be exempt from withholding taxes?
Individuals from outside of Canada may be directed to Waiver 105 form (Tax Exemption certificate) to apply to be waived from the withholding taxes. Work performed outside of Canada will not be subject to withholding taxes, but if a product is being provided to a Canadian address, taxes may be assessed.
30 days prior to their anticipated arrival in Canada, individuals should send the following completed documents to the Canada Revenue Agency at 333 Laurier Street, Ottawa, ON, K4A 4P4 (phone: +613-688-7440):
- Copy of letter of agreement/ contract with University department
- Copy of Passport Identification page (notarized)
- Form T1261 (Tip: you can also search Canada Revenue Agency’s website for ‘Form T1261’)
- Regulation 105 Waiver Application (Tip: you can also search Canada Revenue Agency’s website for ‘Waiver 105’)
Based upon an approved application, the Canadian Revenue Agency will prepare a Tax Exemption Certificate. The certificate will be sent to both the individual and the departmental administrator as indicated on the application. This certificate must accompany all requisitions for payment (in copy form) submitted to Accounts Payable to prevent withholding tax from being deducted.