6 Steps of Canada Payroll Taxes

An employer, trustee or payer of remuneration or other types of income is responsible for deducting Canada payroll taxes when making those payments. Payroll taxes include the Canada Pension Plan (CPP), Employment Insurance (EI) and income tax.

How do Canada payroll taxes work?

If you are an employer, trustee or payer, you should deduct CPP, EI and income tax when paying remuneration or other types of income, and remit those deductions plus your own share to the Canada Revenue Agency (CRA) by the deadline.

What steps should you follow?

The following six steps will help you understand your responsibilities on payroll taxes.

Step 1. Determine your status — whether you are an employer, a trustee or a payer.

Step 2. When you hire an employee, obtain their Social Insurance Number (SIN) and have them submit a completed TD1, Personal Tax Credits Return, immediately.

Step 3. Register for a payroll account with the CRA before your first remittance is due.

Step 4. Calculate payroll deductions at the end of each pay period, covering CPP, EI and income tax to the extent applicable. You deduct CPP contributions from your employee’s pensionable earnings, and as an employer you must contribute an amount equal to the CPP contributions you deduct. You deduct EI premiums from each dollar of insurable earnings up to the yearly maximum, and as an employer you must contribute 1.4 times the EI premiums you deduct. You are also responsible for deducting income tax from the remuneration or other income you pay; there is no age limit for deducting income tax, and no employer contribution is required.

Step 5. Remit the payroll deductions calculated in step 4 — both the employee’s and the employer’s share — by the 15th day of the month following the month in which the deductions were made, using remittance Form PD7A.

Step 6. Report employment income annually by the last day of February following the calendar year the information return applies to. You must file your T4 Information Return and T4 Summary, and issue T4 slips to your employees, by that date.

What are the consequences of failure?

• If you do not pay an amount of payroll tax or penalty, the CRA may apply interest at the rate determined every three months, based on prescribed interest rates, for the number of days of delay.
• If you do not make a reasonable effort to get your employee’s SIN, you may be subject to a penalty of $100 for each number you do not try to obtain.
• Employees who do not complete new forms may be penalised $25 for each day the form is late. The minimum penalty is $100, increasing by $25 per day to a maximum of $2,500.
• The CRA may impose a penalty of 10% of the amount of CPP, EI and income tax if you fail to deduct them for the first time. For subsequent failures in circumstances of gross negligence, a 20% penalty applies.
• For failure to remit, or delay in remitting, CPP, EI and income tax, the CRA will impose a penalty of 3% to 10% of the amount in default, depending on how long the failure continues. If you are assessed such a penalty more than once in a calendar year in circumstances of gross negligence, a 20% penalty applies.
• If you fail to file your information return, the penalty is $10 to $75 per day based on the number of information slips, subject to a maximum of $1,000 to $7,500.

The CRA publishes an Employer’s Guide on payroll deductions and remittances, and a Payroll Deductions Online Calculator. Do feel free to contact us at cs@bkcprohub.com, should you need our services.