In Canada, employers that pay salaries, wages, or certain taxable benefits are required to make deductions from that payment. Not only do employers need to make deductions from the payments to employees, but they also need to remit them to the Canada Revenue Agency (CRA).
What are the payroll deductions that employers need to make and then pay to the CRA? These deductions include:
- Federal, Provincial, or Territorial income tax
- Employment Insurance (EI) Premiums
- Canada Pension Plans (CPP) Premiums
If you’re an employer outside of Quebec with employees that you make regular payments to, then you are required by the CRA to deduct EI premium, CPP contribution, and income tax from an employee’s pay.
For payroll deduction purposes, CRA requires employers to get all employees and pensioners to complete a federal and provincial TD1 form. The information in the form is then used to calculate the income tax amount to deduct from the employment or pension income.
The TD1 form must be completed by all new employees. However, there is no need to fill the form again unless there is a change in an employee’s personal tax credits. The personal tax credit is a non-refundable ‘personal amount’ that all employees or taxpayers can claim on their income tax. The more personal credits a taxpayer has, the lower will be their deductible income tax.
After adding the deductible CPP contributions and EI premiums to the deductible income tax amount determined via the TD1 form, the employer will know the total amount that needs to be deducted from an employee’s pay each month. These calculations can be made using a payroll calculator for Canada.
Once you know how to use a payroll deductions calculator to calculate payroll deductions in Canada, the next step will be finding out how you can remit/pay these deductions to the CRA. We will be discussing this step next.
Determining the Federal, Provincial, Territorial Income Taxes, CPP Contributions, and EI Premiums to Make in Canada
As mentioned above, employers in Canada need to make several deductions from each paycheque of an employee; they are also required to remit/pay to the Canada Revenue Agency (CRA).
After calculating the payroll deductions with a payroll deductions calculator, the first thing that employers need to do to remit these deductions to the CRA is to open a payroll account comprising of the business number, a 4-digit identifier, and the letters RP that indicate a payroll account.
If you don’t have a federal business number already, then you will need to get it before you can start remitting the payroll deductions to the CRA. You can do this in the following ways:
- Use the Business Registration Online (BRO) service to register the number online
- Call the CRA at 1-800-959-5525
- Fill the Form RC1 Request for a business number and send it to your nearest tax center or tax service office
Once you have a business number, you can use the BRO service to register for a payroll account. Now, some companies have two separate businesses running under the same parent entity. In this situation, the parent company may require separate payroll accounts for each business. In this situation, the company can request for two different payroll accounts under the same federal business name.
For example, the company will have one business with the 4-digit payroll identifier or number RP 0001 and the other with the number RP 0002. This means that the payroll deductions for each business will be handled separately from the other.
Paying Income Tax—Federal and Provincial/Territorial Income Tax
Employers in Canada are required to withhold income tax from the payments made to employees each month. This includes both federal income tax and provincial/territorial income tax. Federal income tax is self-explanatory—it is income tax that needs to be deducted from an employee’s pay and then paid to the federal government. However, the tax is not remitted directly into an account of the federal government.
Instead, it can be paid using phone banking, online banking, mail, or through CRA’s My Payment Service.
If you choose to pay via cheque, then you can attach a check or money order to your return’s first page. The pay order or cheque should be signed to the Receiver General. To find the relevant mailing address, you can visit the official page where this information is provided.
Paying/remitting the income tax via online or phone banking is the same as paying any other bill using this payment method. If you use the My Payment Service to make the remittance, then you can pay directly to the CRA, provided you have an online banking account with the following banks:
- TD Canada Trust
- RBC Royal Bank
- Bank of Montreal
Finally, if you want to pay at a Canadian financial institution, then pay the income taxes by check or money order by attaching a personalized remittance voucher with it. This is a voucher that provides the CRA with your specific account information. You can pre-order the voucher online or by calling at 1-800-959-8281.
Provincial/territorial taxes need to be deducted from an employee’s pay and paid to the province/territory where the employer operates, and the employee is based. These taxes need to be remitted in the same way as federal income taxes.
Paying CPP Contributions and EI Premiums
In addition to paying income tax, employers in Canada need to account for CPP and EI. This means that they need to deduct CPP contributions and EI premiums from an employee’s pay as well. However, there are certain rules for deducting CPP and EI that employers need to follow. For example, employees earning $3500 or less in a year are exempt from CPP deductions.
Additionally, the maximum pensionable earnings for CPP are $57,400, and $2,748.90 is the amount of both the maximum employer and maximum employee contribution. CPP can no longer be deducted from an employee’s pay after the amount reaches the maximum annual contribution for the year.
As for Employment Insurance (EI) premiums, the maximum insurable earnings are $53,100, and the maximum annual employee premium is $860.22. An EI can no longer be deducted from an employee’s pay after it reaches the maximum annual premium. The deductible CPP contributions and EI premiums can be calculated using a payroll deductions calculator.
How to Pay Income Tax, CPP Contributions, and EI Premium Deductions
Once an employer has deducted the federal and provincial/territorial income tax, CPP contributions, and EI premiums from an employee’s pay, they will need to remit it to the CRA.
Employers can do this in two different ways. The first is using paper-based remittance vouchers, and the second is remitting the payments electronically. If an employer makes all payroll deduction payments electronically to the CRA, then they can view their transactions and payments through their My Business Account. In the scenario where a company has two running businesses, it can have two payroll accounts under the same My Business Account or federal business number. How this works is already explained above.
If an employer chooses to pay the payroll deductions electronically, then they can make the payment through an electronic service of CRA called My Payment. They also have the option of internet banking and creating a pre-authorized My Business Account.
On the other hand, if an employer chooses to make the payments through paper-based remittance vouchers, then they can do this in four different ways. These include:
- In-person payments using an original remittance voucher at the dedicated bank of the financial institution.
- Remitting the payroll deductions through wire transfers
- Mailing a cheque or money order
- Making the payment using paper-based remittance vouchers and debit or credit card
In addition to remitting the payroll deductions to the CRA, employers are under obligation to provide employees with proof of payments. A T4 slip is used for this purpose. A statement that shows the remuneration paid to an employee, the T4 slip indicates all the payments made to an employee during a calendar year. This includes the amount deducted for income tax and the taxable benefits. The T4 slip that an employee receives from their employer includes the same information that is sent to the government.
By referring to the information given above, you can determine how you need to calculate, deduct, and remit federal and provincial/territorial taxes, CPP contributions, and EI premiums to the CRA.