Calculating Canadian Payroll Deductions
When calculating Canadian payroll deductions, you must account for a number of deductions which include:
- Canada Pension Plan (CPP): You must deduct CPP contributions from an employee's pensionable earnings if that employee:
Is 18 or older, but younger than 70
Is in pensionable employment during the year; and
Does not receive a CPP or QPP retirement or disability pension
Contributions are not calculated from the first dollar of pensionable earnings. Contributions are calculated using the amount of pensionable earnings less an exempt amount that is based on the period of employment.
Employment Insurance (EI): You must deduct EI premiums from an employee's insurable earnings if that employee is in insurable employment during the year up to the annual maximum. No age limit exists for deducting EI premiums, and Insurable employment includes most employment in Canada under a contract of service
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Income Tax: As an employer or payer, you are responsible for deducting income tax from the remuneration or other income you pay. The Canada Revenue Agency can provide the following forms: Most employees and recipients complete Form TD1, Personal Tax Credits Return. Employees who are paid commissions and who claim expenses may choose to complete Form TD1X, Statement of Commission Income and Expenses for Payroll Tax Deductions, instead of completing Form TD1.
Fishers complete Form TD3F, Fisher's Election to Have Tax Deducted at Source.
Special payments: You must determine deductions on various types of payments like bonuses, overtime and retiring allowances.
Special situations: You must determine deductions for special situations such as employment outside Canada or employing Indians. Other potential Special Situations include: Barbers and hairdressers
Drivers of taxis and other passenger-carrying vehicles Emergency volunteers
Employees of temporary-help service firms
Employees with power saws or tree trimmers Employing a caregiver, baby-sitter, or domestic worker Fishers and employment insurance (EI)
Placement and employment agency workers Seasonal agricultural workers program Special or extra duty pay for police officers
Benefits and allowances: You must establish whether benefits and allowances such as gifts, meals and housing are taxable or not. Examples of taxable benefits and allowances may include:AutomobileCell PhoneChildcareHousing ExpensesBoard and LodgingCounseling servicesDisability related employment benefitsGifts and AwardsEducational allowances for childrenHousingInterest free loansInternet serviceMealsMedical ExpensesParkingMedical PremiumsProfessional Membership DuesSocial EventsTuitionUniforms
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Canada Payroll Deductions