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Guide to Canadian Payroll Deductions for Employers

Guide to Canadian Payroll Deductions for Employers. Paying your employees fairly is one of your duties as an employer once you’ve employed them. In Canada, this entails adhering to the CRA’s regulations and making and remitting the appropriate payroll deductions. You can follow the instructions in this article to learn how to process payroll in Canada.

How to Do Payroll in Canada

Employers in Canada must follow these five processes to process payroll:

  • Opening a payroll account with the CRA and using it.
  • Obtaining the necessary data from workers, such as their social security number (SIN) and a finished TD1 form for the federal and provincial governments.
  • Making the required payroll deductions from Canadian employees’ paychecks each pay period.
  • Submitting these payroll deductions, together with the employer’s portion of the CPP and EI premiums, to the CRA when necessary.
  • Submitting an information return on or before the last day of February of the next calendar year, together with the necessary T4 or T4A slips for each employee to report their earnings and deductions.

Let’s take a closer look at each of these actions.

1. Open a Payroll Account

To submit your payroll deductions to the CRA, you will require a payroll deductions program account with the CRA. 1

You will simply be adding a payroll deductions account to your existing program accounts if you already have a business number (BN) and have registered for other CRA program accounts (such as GST/HST).

You will need to obtain a BN first if you don’t already have one, which you can achieve in a number of ways:

  • Utilize the Business Registration Online (BRO) program to register online.
  • Call 1-800-959-5525 to get in touch with the CRA.
  • Send Form RC1, Request for a Business Number, to your neighborhood tax center or tax service office (TSO) (TC).
  • Once you have a BN, you can use the BRO to sign up for program accounts.

2. Collect Required Information From Employees

You should have checked each new hire’s SIN card as part of the recruiting procedure and written down their name and SIN exactly as they appear on the card. Keep an eye out for social security numbers that begin with the digit “9.” This number designates someone who is not a citizen of Canada or a permanent resident and who is only permitted to work until the date listed on the paperwork that Immigration, Refugees, and Citizenship Canada provided to them.

The necessary federal and provincial Form TD1, which establishes the amount of tax to be deducted from an individual’s employment income, should have also been completed by the new employee by this point.

3. Make the Appropriate Payroll Deductions

Make sure you have added any taxable benefits to your employees’ compensation before making any deductions. Do you offer an employee a low-interest loan, parking, boarding, housing, or the use of a corporate car? A taxable benefit is anything you give an employee in addition to their monetary compensation.

Additionally, taxable benefits that are part of an employee’s salary must be included in their income each pay period before you make any payroll deductions. The entire amount subject to CPP contributions, EI premiums, and income tax deductions is determined by the total income.

Information on how to determine the value of these benefits and which taxable benefits are subject to GST/HST may be found in the CRA’s Guide T4130. 5

You are prepared to make your Canadian payroll deductions once you have taken into account all taxable earnings and benefits. The following three government program deductions must generally be made by employers from employee wages:

Use the provincial or territorial tables for the province or territory in which the employee is employed when calculating income taxes.

  • 6 Using the CRA’s online calculator, which also calculates all the other payroll deductions you must make, is the simplest way to do this. On the CRA’s payroll page, you can also locate all the payroll deductions tables you require.
  • Contributions to the Canada Pension Plan are typically required if an employee is between the ages of 18 and 69, doing a pensionable job, not handicapped, and not already receiving a CPP or QPP pension. On the CRA’s Canada Pension Plan page, you can find useful information such as contribution rates, maximums, exemptions, and more. Employers in Quebec should go to Revenu Quebec.
  • Payroll deductions for employment insurance premiums are typically made on each dollar of insurable wages up to the annual maximum. The EI contribution made by the employer is 1.4 times the EI premium is withdrawn from each employee (but you may qualify for a reduced rate if you offer your employees a short-term disability plan). EI premium deductions have no age restriction, in contrast to the CPP. 8 You stop deducting employee EI once it reaches the yearly maximum amount.

To determine the EI deductions for a particular year, consult the CRA’s table of EI premium rates and maximums. Keep in mind that Quebec, which has a different rate structure, has a separate chart.

2021 EI Rates and Maximums
Max. Annual Insurable Earnings Rate % Max. Annual Employee Premium Max. Annual Employer Premium
Federal $56,300 1.58% $889.54 $1,245.36
Quebec $56,300 1.18% $664.34 $930.08

You can use the CRA’s online calculator to figure out how much employment insurance you must withhold from every pay period, just like with other payroll deductions. Keep in mind that not all benefits and compensation you provide to employees are covered by Employment Insurance.

There may also be unique circumstances that have an impact on your EI deductions as a Canadian employer. For more on subjects like employment outside of Canada, special payments, and hiring a family member, visit the CRA’s Employment Insurance page.

4. Remit Deductions to the CRA

You have the option of sending money electronically or using physical remittance vouchers, and you can get account statements in the mail. If you send money electronically, you can use your online My Business Account to examine your statements and transactions.

The CRA must receive your deductions on or before the 15th day of the month following the month you made the deductions since new employers are considered regular remitters. You may later be categorized as a quarterly or accelerated remitter and require fewer paperwork once you have established payment history.

Visit the CRA’s page on remitting payroll deductions for more details on remittance, including instructions on how to fix payroll remittance mistakes.

5. Complete All T4 Slips and Information Returns

Finally, as an employer, you must complete the T4 summary form and a T4 slip for each employee each year. On or before the last day of February following the calendar year to which the information return relates, you must file the T4 information return and distribute the T4 slips to the employees. 10

T4 slips can be electronically completed in an online PDF or through the CRA’s T4 web forms tool, which allows you to submit up to 100 original, additional, canceled, or revised T4 slips.

Visit the T4 – Information for Employers page of the CRA for further details about T4 slips.

If you choose to file the T4 Summary form on paper or online, you must deliver the original summary and any associated T4 slips to the Jonquière Tax Centre. For more details, click the above link.

More Information on Running Payroll in Canada

Unless the CRA has granted you permission to retain them elsewhere, all of your business records, including payroll records, must be kept at your place of business or at your residence in Canada. Also, keep in mind that you must maintain your business records and supporting documentation for a minimum of six years in order to assess your tax responsibilities.

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