Running Payroll and Remitting Source Deductions in Canada

Is my worker an employee or a contractor?

The working relationship determines whether you must run payroll. An employee generally works under the payer's direction; a self-employed contractor runs a business and controls how the work is done. A contract calling someone a contractor does not settle the question (CRA: employment status).

Look at who controls the work, supplies tools, can hire help, and bears a real chance of profit or loss. For a contract formed in Quebec, the CRA applies the Civil Code of Québec and focuses on the right to direct the work (CRA: Quebec contracts). If the facts point both ways, the payer or worker can request a CPP/EI ruling from the CRA. Treating an employee as a contractor can leave the payer responsible for missed deductions and employer contributions (CRA: Employers' Guide). For how a genuine contractor reports their own income, see How self-employed income is taxed.

When do I need a payroll account?

Open a CRA payroll program account when you pay wages, salary, bonuses, vacation pay, taxable employee benefits, or other remuneration requiring payroll deductions. If you already have a business number, add an RP payroll account; otherwise obtain a business number and register before your first remittance is due (CRA: Employers' Guide).

Before the first pay date, gather each employee's social insurance number, federal TD1, applicable provincial or territorial TD1 (Quebec employees use TP-1015.3-V), province of employment, pay schedule, and benefit details. If a SIN starts with 9, check the employee's current document authorizing work and its expiry (CRA: Employers' Guide). Use the province of employment to choose the tax table; it may differ from where the employee lives. For remote staff, check which employer establishment they report to or are reasonably attached to, or failing that, the establishment that pays their salary; their home province does not automatically decide (CRA: province of employment). Keep a record of gross pay, deductions, employer contributions, net pay, and payment dates.

What do I deduct from each paycheque, and what does the employer pay?

For most non-Quebec employees, deduct federal and provincial or territorial income tax, CPP and, if the job is insurable, EI. The employer adds its own CPP contribution and EI premium; income tax has no employer match. CPP2 can also apply once annual pensionable earnings enter its additional earnings band (CRA: Employers' Guide).

CPP applies from age 18 through the month the employee turns 70. An employee aged 65 to 69 who receives a CPP or QPP retirement pension, including an owner, can sign Form CPT30 and give you a copy; employee and employer CPP then stop from the first pay in the next month. For work in Quebec, that choice is made with Retraite Québec instead (CRA: Form CPT30; Canada Pension Plan, s. 12).

Use the CRA payroll calculator or current CRA deduction tables for the actual pay date, pay period, province of employment, TD1 claims, and year-to-date CPP/EI totals. The calculator does not calculate Quebec provincial deductions. Check how bonuses and taxable benefits are treated before using regular-pay figures. Remit employee deductions and employer contributions together; do not fund the employer share from net employee pay (CRA: Employers' Guide).

What changes when the only employee is me, the owner?

A corporation paying its owner a salary still runs payroll through an RP account and reports the salary on a T4. Pensionable salary generally requires both employee and employer CPP. If the owner controls more than 40% of the corporation's voting shares, that employment is not insurable for EI (CRA: Employers' Guide). Below that cutoff, related or otherwise non-arm's-length employment may still be non-insurable; request a CRA ruling if the terms are uncertain (CRA: arm's-length test).

A sole proprietor or partner cannot turn their own drawings into deductible wages; paying other employees still requires payroll. A dividend is a return on shares, not pay for services, and follows different reporting rules. See Salary or dividends before choosing how a corporation pays an owner (CRA: salaries and drawings; CRA: shareholder payments).

When are remittances due?

The CRA remittance period follows the date the employee is paid, not the period the employee worked. Your assigned remitter type sets the due date. It generally uses required CRA remittances from two calendar years earlier, divided by the months requiring a remittance (up to 12); multiple payroll accounts and associated corporations are combined. A corporation that acquires substantially all of another employer's business property by a section 85 rollover, amalgamation, or winding-up also counts that employer's remittances (Income Tax Regulations, s. 108). Check the type shown in your CRA account rather than assuming a small payroll means quarterly remitting (CRA: types of remitters).

Quarterly due dates are April 15, July 15, October 15, and January 15. An eligible new small employer may remit quarterly before confirmation; if unsure, remit monthly until the CRA confirms eligibility on Form PD7A. An established employer must be notified of quarterly eligibility. If a due date falls on a CRA-recognized weekend or holiday, the next business day applies. If you temporarily pay no employees, report a nil remittance by your usual due date and tell the CRA when pay is expected to resume. A final remittance is due within seven calendar days if the business stops operating, its legal status changes, a proprietor or partner dies, or it enters bankruptcy or restructuring (CRA: when to remit; CRA: Employers' Guide).

How do I pay remittances to the CRA?

Add the employee deductions and employer contributions for the remittance period, then pay them against the correct CRA payroll account and period. CRA business payment options include online banking, CRA online payment, pre-authorized debit, and payment at a Canadian financial institution; check the method required for your remitter type (CRA: how to remit; CRA: payment options).

Save the payment confirmation and reconcile it with the payroll ledger and CRA account statement. A payment initiated on the due date is not always received on time: online banking counts when the financial institution credits the CRA, while a mailed payment counts when the CRA receives it. Payments over $10,000 generally must be electronic unless the payer cannot reasonably do so. Accelerated remitters in the second threshold must pay electronically or at a Canadian financial institution (CRA: Employers' Guide; CRA: how to remit).

What if a remittance is late or missed?

Send the missing amount as soon as it is identified. The CRA can charge a late-remittance penalty and daily compounded interest; filing a T4 does not defer current remittances (CRA: when to remit). A narrow Payment on Filing procedure covers eligible year-end reconciliation shortfalls. Penalties, interest, and relief covers the rates and possible relief.

A person who was a director when the corporation failed to deduct or remit payroll amounts can be personally liable for them, with interest and penalties, subject to collection conditions and a due-diligence defence. The CRA cannot start recovery more than two years after the person last stopped being a director (Income Tax Act, s. 227.1). A director should verify that deductions are held and payments actually clear, even when someone else processes payroll (CRA: directors' liability). If old payroll or T4 filings were never made, see Catching up on unfiled corporate returns.

What do I file at year-end?

File required T4 slips and a T4 Summary for the payroll account, and give employees their slips by the last day of February after the calendar year paid. A slip is generally required if you had to deduct CPP/QPP, EI/QPIP, or income tax, if remuneration is more than $500, or if you provided a taxable group term life insurance benefit. If the deadline falls on a weekend or CRA-recognized holiday, the next business day is the filing deadline. A business that stops operating must file within 30 days; if a sole proprietor or partner dies, the deadline is 90 days after death. Reconcile gross pay, income tax, CPP, EI, and remittances before filing; the T4 reports pay in the year paid, even if the work was done earlier (CRA: filing T4s).

If you file more than five T4 slips for a calendar year, file them electronically; the count is per slip type (Income Tax Regulations, s. 205.1). Separate RP accounts need separate T4 returns. Quebec employees generally also need RL-1 slips and an RL-1 Summary sent to Revenu Québec by the last day of February (CRA: filing T4s; Revenu Québec: RL-1 filing).

When do I issue a Record of Employment?

Issue a Record of Employment when an employee receiving insurable earnings has an interruption of earnings or when Service Canada asks for one. Usually this means seven consecutive calendar days with no work and no insurable earnings; illness, maternity, parental, and caregiving leave can trigger it earlier when earnings fall below 60% of regular weekly earnings. It is sent to Service Canada, not with the T4 return (Service Canada: ROE guide).

For a paper ROE, the usual deadline is five calendar days after the interruption starts or you learn of it. For an electronic ROE with weekly, biweekly, or semimonthly pay, it is five calendar days after the end of the pay period containing the interruption. For monthly pay or 13 pay periods a year, it is the earlier of five calendar days after that pay period ends or 15 calendar days after the interruption's first day (Service Canada: ROE guide).

What extra payroll rules apply in my province?

The province of employment controls the applicable income-tax table, and provincial employer obligations can sit outside the CRA remittance. Check provincial employment standards, workers' compensation, and payroll taxes where staff work; the CRA payroll account does not replace those registrations (CRA: Employers' Guide).

Example

Illustrative amounts in Canadian dollars; the deductions are assumed figures, not a rate calculation. A corporation pays one Ontario employee C$4,000 on June 30. Its pay record shows C$600 income tax, C$220 CPP, and C$65 EI withheld. The corporation adds C$220 employer CPP and C$91 employer EI. The employee receives C$3,115; the corporation owes C$1,196 to the CRA for that payment. If the corporation is a regular remitter, the CRA must receive the remittance by July 15. The June pay date controls, even if the work was done in May.

Different for you?

• You are paying only a corporate owner: decide whether the payment is salary or a dividend in Salary or dividends.
• You want to employ a spouse or child: the employment terms and pay matter; see Paying family members.
• You have Quebec staff, several employees, or missed remittances: gather your business number, RP account, employee list, pay dates, TD1s, payroll ledger, and CRA/Revenu Québec statements for bookkeeping help.
• Past T4s or payroll returns were never filed: see Catching up on unfiled corporate returns.
• A US business provided services in Canada: see Withholding on services in Canada.
• A US employer pays you for work in Canada: see Working across the border.
• The CRA sent a payroll review letter: see Reviews, audits, and voluntary disclosure.