Step-by-Step Guide to Canadian Payroll Deductions and Remittance

You must first set up your business with the authorities and receive your Business Number. Otherwise, you will be unable to open a Payroll Account. Once you’re done, as an employer, you’re responsible for paying employees promptly each pay period. You must comply with the Canada Revenue Agency and report payroll deductions accurately and timely.

To do this, you can choose Checkmark Canada Payroll, which provides a complete solution for processing payroll on the go. Here are some simple steps that will tell you how to do payroll in Canada.

As a Canadian Employer, You Must Get the Basics Right Before Running a Payroll

- You must have a registered Business Number as a Canadian employer. With that Business Number, you can apply to open a payroll deduction account with the Canada Revenue Agency (CRA) in order to remit statutory deductions such as Income Tax, Employment Insurance(EI) and the Canada Pension Plan (CPP).

- Before you hire and put employees on the job, you must obtain correct information from them, such as their Social Insurance Number (SIN) and a completed Federal and Provincial TD1 form.

- Diligently make the correct payroll deductions from employees' paycheques each pay period.

- Ensure you remit employees’ payroll deductions along with the employer’s share of employment insurance premiums and Canada Pension Plan (CPP) contributions to the Canada Revenue Agency, which is mandatory.

- Do not forget to file an information return on or before the due date set by the CRA and report each employee's income and deductions on the appropriate T4 or T4A slip.

Let’s learn how to do these in detail.

You’ll Need to Open an Operating Payroll Account with the Canada Revenue Agency.

If you have not applied for a Business Number, then you will have to do that first, which is easy. Simply contact the Canada Revenue Agency.

If you already have a Business Number (BN), you only need to add a payroll program account to your existing BN. The BN is a nine-digit identifier for businesses to simplify their dealings with federal, provincial and municipal governments in Canada. It aims to give each registered business its own unique number.

Obtain Correct Information from Employees, Such as Their Social Insurance Number (SIN) and a Completed Federal and Provincial TD1 Form.

When you hire a new employee, you need to ensure you obtain and examine each employee’s SIN Card as part of the hiring process. When you record the employee’s details, make sure the name is as it appears on the SIN Card. (Remember that SINs with the number 9 indicate the employee is not a Canadian citizen or permanent resident and is authorized to work only for a particular employer with a valid employment authorization issued by Citizenship and Immigration Canada.)

Let the new employee fill out the appropriate federal and provincial Form TD1, Personal Tax Credits Return, which determines how much tax is to be deducted from a person's employment income.

Ensure You Make the Correct Canadian Payroll Deductions from Employees' Pay Each Pay Period.

The employer has an obligation to deduct Canada Pension Plan contributions (CPP), Employment Insurance premiums (EI) and Income Tax from the remuneration in each pay period. You will need to remit these deductions along with the employer’s share of CPP and EI to the Canada Revenue Agency (CRA) on a regular basis.

You will be on the radar of the Canada Revenue Agency if you fail to…

  • Deduct the required amounts.
  • Remit the deducted amount from employee.
  • Remit the amount before the due date. After the due date, the CRA will assess and impose a penalty.

Employers also have the responsibility to report employees’ income and deductions on the appropriate payroll forms, T4 and T4A. The employer is also obliged to complete and issue an ROE (Record of Employment) within five days of when the employee stops working for the company.

Perks and Other Remunerations

Anything you provide to an employee other than money may be considered to be a taxable benefit. Examples include boarding and lodging, the use of a company car, parking or a low-interest loan. If an employee's pay involves taxable benefits, these need to be added to an employee's income each pay period before you make any payroll deductions, because the total income determines the total amount that is subject to source deductions and the taxable benefit may be subject to CPP contributions, EI premiums and income tax deductions, just like any other income.

Now you're prepared to make your Canadian payroll deductions. In general, employers need to deduct three things from an employee’s salary each pay period.

  • Income Tax
  • Canada Pension Plan (CPP) contributions
  • Employment Insurance (EI) premiums.

1. Deducting Income Tax

To find out how much income tax you need to deduct from employees' pay, use the provincial or territorial tables for the province or territory where the employee reports to work. However, the easiest way to do this is to use Checkmark Canada Cloud Payroll’s cloud payroll solution, which is up-to-date and provides a complete solution to run payroll.

2. Deducting Canada Pension Plan (CPP) Contributions

In general, you have to deduct CPP contributions if an employee’s age is between 18 to 70 years according to pensionable employment, not disabled and not receiving a CPP or Quebec Pension Plan.

You can visit Canada’s pension plan page run by the CRA to find more details about CPP contribution rates, a maximums and exemptions chart and other useful information.

Are You an Employer in Quebec?

Quebec has its own provincial pension plan, the Quebec Pension Plan (QPP), the Quebec Parental Insurance Plan (QPIP) and its own provincial income tax.

"Employers with employees in Quebec have to deduct contributions for the QPP instead of the CPP, if the employment is pensionable under the QPP. Employers have to take deductions for both the QPIP and EI.”

For more information, visit the Revenue Québec website

3. Deducting Employment Insurance (EI) Premiums

Generally, you need to deduct EI premiums from employees' pay for each Canadian dollar of insurable earnings up to the yearly maximum and contribute 1.4 times the EI premium withheld for each employee. There is no age cap for deducting EI premiums. When your employee’s EI deductions reach the yearly maximum amount, you stop deducting them.

Some benefits and payments given to employees are not subject to Employment Insurance; to know more, read the Canada Revenue Agency list.

There may also be special situations that affect your EI deductions. As a Canadian employer, you or your department has the responsibility to know how to deal with employment outside Canada, special payments and hiring a family member.

Remit your employee payroll deductions, along with the employer's contributions, to the Canada Revenue Agency.

Generally, the remittance due date is the 15th day of the month following the month in which you began withholding deductions from your employee's pay, unless the CRA tells you to remit using a different frequency.

Read the examples for remittance calculating dates.

Illustrations

Case 1

A business hired employees on June 11, in which case they would be paid bi-weekly. The first pay is on the 25th; therefore, the first remittance due date would be July 15.

Case 2

You hire an employee on June 25 and pay him on July 3. Your first remittance due date would be August 15.

Normally, the Canada Revenue Agency sends you a remittance form in the mail each time a payroll deductions remittance is due. However, as a new Canadian employer, you won't have a remittance form for your first payment, so you will need to send cheques or a money order payable to the Receiver General with your Business Number (BN) printed on the back to the appropriate tax center.

With this cheque or money order, you need to include a letter that states:

  • Your Business Number,
  • That you are a new remitter,
  • The period your remittance covers,
  • The employer’s name, address and business contact number, as applicable.

New employers are classed as regular remitters by the CRA, which means you have to remit your deductions so the Canada Revenue Agency receives them on or before the 15th day of the month following the month you made the deductions. Later, once you have established a remittance history, you may find yourself reclassified as a quarterly or accelerated remitter, in which case you have less paperwork to complete.

You must file an information return on or before the due date set by the Canada Revenue Agency and report each employee's income and deductions on the appropriate T4 or T4A slip.

Finally, as an employer, each year you need to complete a T4 slip for each employee and complete the T4 Summary form.

You must file the T4 information return and give the T4 slips to the employees on or before the last day of February following the calendar year to which the information return applies.

T4 slips may be filled out electronically using the Canada Revenue Agency's T4 Web Forms application (which lets you file one to six original or amended T4 slips) or filled out online using a fillable PDF T4 form.

The T4 Summary form may also be filled out and filed electronically. You may also file it in paper form, in which case you will need to send the original summary and related T4 slips to the Ottawa Technology Centre.

Severe Penalties for Offenses and Omissions

For offenses and omissions, the Canadian Revenue Agency (CRA) will assess penalties and fines varying in the range of $1,000 to $25,000, imprisonment for up to 12 months or a combination of both.

Value Information about Keeping Records

As a Canadian employer, you must keep all of your business records, including your payroll records for at least four years. You can keep these at your place of business or at your residence in Canada.

For complete information, please visit http://www.cra-arc.gc.ca

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