Calculating Canadian Payroll Deductions

When calculating Canadian payroll deductions, you must account for a number of deductions which include:

  1. 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
Canadian Payroll Deductions

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:
  • Automobile
  • Cell Phone
  • Childcare
  • Housing Expenses
  • Board and Lodging
  • Counseling services
  • Disability related employment benefits
  • Gifts and Awards
  • Educational allowances for children
  • Housing
  • Interest free loans
  • Internet service
  • Meals
  • Medical Expenses
  • Parking
  • Medical Premiums
  • Professional Membership Dues
  • Social Events
  • Tuition
  • Uniforms

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