Explained: Post Tax Deductions in Nova Scotia

Companies that want to hire in Canada will need to understand the differences in provincial taxation laws to remain compliant. For example, the tax rates and available credits in Nova Scotia can drastically differ from those in Ontario. 

Your business will need to know all about the federal income tax deductions and provincial tax structures to ensure that all the applicable tax benefits can be applied, effectively saving you and your employees money during income tax season.

However, understanding all the requirements for payroll in Nova Scotia, including post-tax deductions, is easier said than done. Despite the complexity, obeying the rules and regulations is essential for companies to avoid substantial penalties. 

This guide will tell you everything you need to know about post-tax deductions, including what they are, how they can help your business, and some of the best tax benefits that can be applied for. 

What Is an After-Tax Deduction?

A post-tax deduction is a payroll deduction that’s withheld from each employee’s paycheck after income has already been taxed. These are applied after the necessary withholdings from federal, state, provincial, and local income taxes. The amount can vary depending on the employee’s tax bracket. 

Post-tax deductions can help companies access all the benefits or credits they may be entitled to, including travel expenses and reimbursements for other employment costs. After-tax deductions are calculated after you withhold the required pre-tax payroll deductions from the employee’s gross pay.

Post-tax deductions can include: 

• Withholding insurance premiums 
• Voluntary after-tax contributions to RRSPs 
• Union dues 
• Other types of voluntary deductions 
• Garnishments
• Employer-sponsored pension plans

Post-Tax Deductions vs. Pre-Tax Deductions

Employers who want to build a presence in Nova Scotia will have to understand the important differences between post-tax deductions and pre-tax deductions. 

Pre-tax deductions are withheld from an employee’s paycheck before taxes are applied. These deductions reduce taxable wages and how much a company or worker owes on each paycheck. These deductions are excluded from gross pay. 

Post-tax deductions, on the other hand, are taken from the net income rather than gross pay, meaning they don’t lower the individual worker’s tax burden. Net income is the amount a worker receives after tax withholdings have been applied. Generally, employees can decline to participate in most post-tax deductions. 

FICA Taxes

Taxes for the Federal Insurance Contributions Act (FICA) are a type of pre-tax deductions that must be withheld from an employee’s paycheck. FICA taxes are meant to support social security and medicare programs. These taxes equal 6.2% of an employee’s paycheck for Social Security and 1.45% for Medicare as a wage-dependent contribution. 

Most individuals and earned wages are subject to FICA taxes, though there are certain exceptions, including:

• Some children under the age of 18
• Income received from employer retirement plans, such as a 401(K)
• Students who earn income from their school
• Some religious organization employees and government officials

Self-employed individuals are responsible for handling their own payroll deductions and Self-Employment Contributions Act (SECA) taxes. Business owners need to pay taxes for both the employee and employer, though they can also deduct a portion of their SECA taxes. 

Advantages of Post-Tax Deductions for Employers

Employers and employees can benefit from post-tax deductions in Nova Scotia in a few significant ways. 

Compliance

Having workers opt in to post-tax deductions can make it significantly easier to remain compliant with Nova Scotia’s provincial labor laws. Post-tax deductions do not impact a worker’s taxable income, which can ease the burden on employers when administering payroll. 

Ensuring the proper deductions are withheld is essential to obeying Canadian income tax laws, along with the Canada Revenue Agency’s regulations and other provincial employment laws. 

Better Employee Engagement and Morale

Companies that offer post-tax deduction benefit packages that align with employee needs and wants can experience a range of additional advantages. 

Giving your workers the chance to opt in to post-tax deduction programs such as voluntary retirement plans or subsidies for charitable donations can improve employee engagement and increase morale. Improved employee satisfaction can help you refine your recruitment strategy and retain your existing skilled workforce. 

Companies with happier employees can also experience increased productivity among team members, more efficient communication, and a reduced risk of burnout. 

Benefits for Employees

Flexibility

Nova Scotia post-tax deductions are voluntary, giving employees greater flexibility when allocating resources to their desired programs. For example, employees may have the option to increase contributions to a retirement plan or pension to suit their current or future financial goals. 

Employees can also voluntarily contribute to things like education or health insurance funds. Employees who make contributions to their Registered Retirement Savings Plan (RRSP) with after-tax dollars will get a tax break at the end of the fiscal year, and savings will grow tax-free until withdrawn by the contributor. 

Tax Benefits

One of the major ways employees can benefit from opting into post-tax deductions in Nova Scotia is by gaining access to the province’s various tax benefits. 

Generally, employees will not have to pay taxes on the benefits they receive from voluntary post-tax deductions, allowing for even more flexibility. By utilizing post-tax deductions properly, employees may also be able to access some credits that can reduce their overall taxable income. 

Common Examples of Post-Tax Deductions in Nova Scotia

Incorporating post-tax deductions can make complicated administrative processes much more efficient. It can contribute to a more compliant taxation system and happier employees. However, companies hiring in Canada may be wondering what post-tax deductions in Canada can look like.  

Charitable Donations

Employees can report any charitable donations or contributions on their federal and provincial tax returns to access certain credits or deductions. This can help employees lower their amount of payable tax at the end of the fiscal year, and individuals can carry forward unused donations for up to five years in Canada. The amount workers can claim for federal charitable donations cannot exceed 75% of their annual net income. 

To claim any applicable credits, employees will need to provide official donation receipts and any other important documents, such as cheques or bank statements. Credits can only be claimed once. 

Each province has its own provincial tax credits that can be applied. In Nova Scotia, the charitable tax reduction value is 8.79% for the first $200 donated and 21% for any amount afterward. 

Retirement Plans

Retirement plan contributions, such as the RRSP, are another example of a post-tax deduction in Nova Scotia. Employees and employers can contribute to these funds in a number of ways, including through accredited banks, insurance companies, or by consulting a professional. Your retirement savings plan can hold a range of investments like mutual funds, cash, or Guaranteed Investment Certificates (GIC).  

In Canada, the majority of retirement contributions are used with pre-tax dollars and are not subject to tax. However, employees who max out their contribution limit can choose to allocate additional resources with post-tax dollars to further grow their retirement plan while deferring taxes.

There are several different types of RRSPs that can bring certain tax benefits to the contributor:

• Individual RRSP: This is registered in the name of a single individual and provides all tax advantages to the owner. There is no minimum age to contribute.
• Spousal RRSP: This is a plan registered in a spouse’s name that the employee also contributes to. Contributors can qualify for tax deductions, but the spouse or common-law partner owns the investment. An individual can contribute to the fund until the age of 71. 
• Group RRSP: In contrast to the other types of retirement plans, an employer offers this to employees to help them save money through regular payroll and tax deductions. These plans are also not regulated by provincial legislation in Nova Scotia, but contributions are tax-deductible from a worker’s income. 

In 2023, the maximum contribution amount is 18% of the worker’s previous year’s income, up to a maximum of CA $30,780. 

RRSP contributions are considered a tax deduction and can lower an individual’s total net income, meaning every contribution can reduce how much income tax is owed. In Nova Scotia, individuals can borrow from an RRSP without tax withholdings in certain situations, including to fund post-secondary education (Lifelong Learning Plan) or buy a first home (Home Buyers’ Plan). 

Additional Voluntary Insurance Coverage

Opting for more comprehensive insurance coverage can be considered another frequently used post-tax deduction in Nova Scotia. Included coverage can also extend to group insurance plans, which the company may offer at much lower premiums than would otherwise be available. 

An example of additional insurance coverage is the Accidental Death and Dismemberment benefit. This plan protects employees if a worker suffers a fatal accident or an accident that causes the loss of use of a limb, sight, hearing, or speech. The amount a worker is entitled to can vary depending on the severity of the injury. This is a taxable benefit for workers when the premium is paid by an employer on behalf of an employee.

Healthcare Premiums

Employees may also contribute to other healthcare-related expenses as a post-tax deduction in Nova Scotia. Despite the fact that Canada has a publicly-funded healthcare system, workers may opt for additional coverage depending on their needs. 

Examples can include supplementary benefits for you and your family, such as dental, prescription drugs, specialized treatment, and vision coverage. 

Workers can also access certain tax benefits like the Medical Expense Tax Credit. This non-refundable credit allows individuals who qualify to file a claim for medical expenses for a value of 3% of their net income or up to $2,479. 

Wage Garnishment

Some regulatory agencies – such as the CRA – require you to withhold additional mandatory post-tax deductions from an employee. Wage garnishment is when an employer withholds a certain portion of a worker’s net wages to pay a creditor. In this case, money is taken directly from a worker’s paycheck and automatically put towards the debt. 

Income such as wages, annual salary, commission, and bonuses can be garnished. However, employment insurance, social assistance, and pension contributions cannot. Additionally, agencies like the Nova Scotia Maintenance Enforcement Program can instruct you to withhold income for other requirements, such as child or spousal support. 

In most cases, companies will need to receive a court-mandated garnishee order from the creditor. Organizations that fail to comply or provide the necessary amount may be responsible for covering the difference, not the worker. They are also responsible for reporting these payroll deductions. 

In Nova Scotia, up to 15% of an employee’s gross wages can be garnished. In contrast to other post-tax deductions, employees cannot voluntarily opt out. 

Understanding Taxation Laws in Nova Scotia

Besides federal requirements and tax withholdings, each province has additional regulations that must be met for your company to remain compliant. This can include various aspects of payroll, like the provincial minimum wage, tax brackets, available tax incentives, and overtime laws. 

Tax Brackets

To ensure that your company is utilizing post-tax deductions properly, the organization will need to accurately withhold the required amount of income tax for each employee. 

The tax brackets in Nova Scotia are:

• 8.79% up to $29,590 of taxable income
• 14.95% between $29,591 and $59,180
• 16.67% between $59,180 and $93,000
• 17.5% between $93,000 and $150,000
• 21% on taxable income exceeding $150,000

Employers will need to consider the provincial and federal costs of hiring an employee in Canada. 

Income Tax Act

The Income Tax Act is provincial legislation in Nova Scotia that stipulates the requirements for taxation laws, including post-tax deductions. 

The policy determines what income is eligible to be taxed, along with income taxation rates. Additionally, it outlines the required reporting process for filing tax returns, how to successfully file taxes, what benefits individuals can receive, and any applicable penalties.

Employers and employees in Nova Scotia should understand the rules and requirements for the various tax credits outlined in the Act.  

Common Tax Benefits

Employees in Nova Scotia can use a number of tax credits, incentives, and post-tax deductions to their benefit. The province has several major options that can be accessed depending on the situation.

• Nova Scotia Affordable Living Tax Credit (ALTC): This provides tax-free payments each quarter to eligible residents of the province. The benefit gives a base amount plus additional money for each child. 
• Nova Scotia Child Benefit (NSCB): This helps support lower-income families to reduce childhood poverty. Families with an adjusted net income below $26,000 per year will receive $1,525 annually for each child.
• Poverty Reduction Credit (PRC): This provides eligible individuals with additional money for basic expenses. The credit is based on the income you report on your tax forms, meaning you do not need to apply for the benefit. 
• Basic Personal Amount (BPA): This is a non-refundable credit that can be claimed by anyone who files their taxes and is meant to help reduce the amount of provincial income tax. Individuals can receive up to $11,481 as of 2018.

There are also numerous tax credits and post-tax deductions that can be used by companies operating in Nova Scotia. This allows businesses to start, expand, or develop a business within the province. 

• Nova Scotia Innovation Equity Tax Credit (Innovation ETC): This is a non-refundable corporate and personal tax credit. The credit promotes equity capital investments in eligible corporations based in the province to contribute to economic growth and innovation. The amount received is a percentage of the company’s initial investment. 
• Nova Scotia Research and Development Tax Credit: This is available to corporations with a permanent establishment in Nova Scotia that made eligible expenditures for research and development. The credit is generally 15% of a company’s R&D expenses.  

Various additional workforce, capital, research and development, and digital media incentives or programs can help companies save some extra money on taxes. 

Filing Taxes in Nova Scotia

You’ll need separate forms to file employee and company federal and provincial taxes. In Nova Scotia, you can file taxes either by mail, online, with certified tax software, or by consulting a professional accountant. It’s important to file your taxes on time and with accurate information to receive the benefits of post-tax deductions.

Additionally, most tax credits that companies and workers may be eligible for require separate applications. For example, Form NS428 is used to calculate your Nova Scotia tax, while companies must file a completed Schedule 340 form with their return to receive the credit for research and development. 

Stay Tax Compliant with Borderless AI

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Speak with us today to see how we can help you expand your business operations. We offer a wide range of services, including consultations, payroll administration, and an all-in-one platform to quickly and efficiently pay your international employees. 

Borderless can help you remain compliant with local labor laws and access a pool of talent from over 170 countries around the world. 

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