An Employer, Trustee or Payer of remuneration or other types of income, is responsible to deduct Canada Payroll Taxes while making payment of such remuneration or other types of income. Payroll taxes include Canada Pension Plan (CPP), Employment Insurance (EI) and Income Tax.
How Canada Payroll Taxes Works?
If you are an employer, trustee or payer, you should deduct CPP, EI and Income Tax while paying remuneration or other types of income and remit such payroll tax deductions plus your share to the Canada Revenue Agency (CRA) by the deadline.
What are the Steps to follow while complying with Payroll Taxes?
The following 6 steps will help you understand your responsibilities on payroll taxes.
Step 1: Determine your status if you are an employer, trustee or payer
Step 2: When you hire an employee (a) Obtain his / her Social Insurance Number (SIN) and (b) Get your employee to submit completed TD1, Personal Tax Credit Return immediately
Step 3: Register for a Payroll account with CRA before your first remittance is due
Step 4: Calculate Payroll deductions at the end of each pay period which include CPP, EI and Income Tax to the extent applicable. You have to deduct CPP contributions from your employee’s pensionable earnings. As an employer, you must contribute an amount equal to the CPP contributions that you deduct from your employees’ remuneration. You have to deduct employment insurance (EI) premiums from each dollar of insurance earnings up to the yearly maximum. As an employer, you must contribute 1.4 times the amount of EI premiums that you deduct from your employee’s remuneration. As an employer or payer, you are responsible for deducting income tax from the remuneration or other income you pay. There is no age limit for deducting income tax and there is no employer contribution required.
Step 5: Remit Payroll deductions as calculated in Step 4, both employees’ and employer’s share, by 15th day of the month following the month in which you made those deductions with remittance Form No.PD7A
Step 6: Report employment income annually by last day of February following the calendar year to which the information return applies to. You must file your T4 Information Return, T4 Summary and issue T4 slip to your employees by the last day of February
What are the consequences of failure?
- If you do not pay an amount of payroll tax or penalty, CRA may apply interest at the interest 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 don’t try to get
- Employees who do not complete new forms may be penalised $25 for each day the form is late. The minimum penalty is $100, and increases by $25 per day to the maximum of $2,500
- 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 under the circumstances of gross negligence, CRA will apply a 20% penalty
- Failure to remit or delay in remitting CPP, EI and income tax, CRA will impose penalty from 3% to 10% of the amount of default depending on the days, the failure continues. Additionally, if you are assessed to such penalty more than once in a calendar year under the circumstances of gross negligence, CRA will apply a 20% penalty
- If you fail to file your information return, penalty shall be from $10 to $75 per day based on the number of information slips subject to maximum penalty of $1,000 to $7,500
Click here for CRA’s Employer’s Guide on Payroll Deductions and Remittances. Click here to use CRA’s Payroll Deductions Online Calculator. Do feel free to contact us on [email protected], should you need our services.