The CRA requires all employers in Canada to file payroll taxes correctly and on time. There are several different types of payroll deductions that need to be made, and various different payroll remittance schedules that need to be followed. Ready for your crash course?
Disclaimer: This information applies solely to Canadian business.
What Are Payroll Deductions and Remittances?
The CRA defines an employer as someone that pays salaries and provides benefits to employees. If you fit this definition, then the CRA requires that you calculate, deduct, and remit source deductions every time you issue payroll.
These source deductions are based on employee income, which includes:
- Employment Insurance (EI) premiums up to a yearly maximum
- Canadian Pension Plan (CPP) contributions up to a yearly maximum
- Income tax based on your provincial rates. This is determined by whether or not the employee works reports to your business establishment.
- Is your work making good use of your skills?
- Does your work align to your desired career path?
- Do you believe that you have all the appropriate resources you need to do your work?
- On a scale of 1-10, how confident do you feel about your given tasks?
- On a scale of 1-10, how comfortable do you feel approaching someone for help?
As an employer, you must also deduct your share of:
- Employer CPP contributions (must match the amount deducted from each employee’s contribution)
- Employer EI premiums (1.4X the amount deducted from each employee’s premium)
Fun (And Important) Facts on EI and Income Tax
- There aren’t any restrictions or requirements for EI or income tax.
- As an employer, you might be able to reduce your EI premiums by offering your employees a short-term disability plan.
- Employment income encompasses wages, salaries, and commissions.
When Should CPP Be Deducted?
- Your employee is between 18 and 70 years of age.
- Employees aged 65-70 can submit a CPT30 form and to be exempt.
- A pension fund has been established for your employee’s role.
- Your employee is not considered disabled.
How To Calculate Payroll Tax Deductions
The CRA created a payroll deduction calculator called the Payroll Deductions Online Calculator (PDOC) to manually calculate your tax deductions, but this can be overwhelming and time consuming.
If you’re on the hunt for something easier, we’re here to help. Knit was designed to help people like you. Our AI-powered payroll software will calculate all these deductions for you automatically, hassle-free.
Which Tax Remittance Schedule Should You Follow?
Remittance schedules for payroll deductions are determined by the average monthly withholding amount (AMWA) of your business. This is the sum of every payroll deduction that you paid to the CRA within the calendar year, which is then averaged on a monthly basis.
The CRA uses a 2 year history of your AMWA to classify your business as either new, regular, accelerated, or quarterly remitter.
New employer, or someone who has never made remittance payments. Payments are due on the 15th day of the month following the one in which the deductions were made.
New employers with less than 2 years of AMWA history, or with a 2 year history of $25,000 or less. Payments are due on the 15th day of the month following the one in which the deductions were made.
Accelerated Remitter - Threshold 1:
Employers with 2 years of AMWA history between $25,000 and $99,999.99. Payments are due on the 25th day of the same month for payroll processed during the first 15 days of the month. Deductions for payroll processed after the 16th day is due by the 10th day of the next month.
Accelerated Remitter - Threshold 2:
Employers with 2 years of AMWA history greater than $100,000. Payments are due by the 3rd working day (not weekends, public holidays, or bank holidays) following the 1st-7th, 8th-14th, 15th-21st and 22nd-last day of the month. In simpler terms, no later than the 3rd business day following the week during which the payroll was processed.
Small businesses with an AMWA of less than $3,000 in the previous 2 years, or with a perfect compliance history with the CRA. Payments are due by April 15th, July 15th, October 15, and January 15th for payroll processed in the previous quarter. Quarterly status is reviewed annually.
Submitting Payroll Remittance Payments
In order to remit your payments, you must fill out these forms:
- PD7A (for monthly, regular, and quarterly remitters)
- PD7A(TM) or PD7A-RB (for accelerated remitters)]
Remitting Deductions in Quebec
If you’re an employer in Quebec, things work a little differently. Quebec uses the Quebec Pension Plan (QPP), provincial income tax, and the Quebec Parental Insurance Plan/Provincial Parental Insurance Plan (QPIP/PPIP).
These payments must be deducted and remitted to Revenu Québec. On top of this, EI and federal tax deductions still have to go to the CRA.
Making Payments On Time To Avoid Penalties
Making source deduction payments on time is crucial if you want to avoid fines, so make sure you don’t forget. Your payroll source deductions must also be held in trust in a separate account from your normal operating account.
The penalties for late payments go as follows:
- 3% if the remittance is 1-3 days late
- 5% if it is 4-5 days late
- 7% if it is 6-7 days late
- 10% for more than 7 days late, or if it never paid.
- 20% for repeat failures and violations.
Here are 2 great options to ensure you make your payments on time:
1. Set reminders on your phone, in your calendars, or with the CRA Reminder App
2. Use an automated payroll management solution like Knit to take care of it for you!