Payroll Deductions & Remittance
Payroll Deductions & Remittance
There are three common deductions made on employee payroll across Canada: Canada Pension Plan (CPP), Employment Insurance (EI), and Income Tax. The CRA has an Online Payroll Deductions Calculator. It can be found at http://www.cra-arc.gc.ca/esrvc-srvce/tx/bsnss/pdoc-eng.html
Employment Insurance (EI)
Deductions of employment insurance premiums are calculated on a table that show the maximum premiums. In 2015, each dollar of earnings up to a maximum of $49,500 must be insured at a rate of 1.88% (rates may change. Be sure to check the CRA website for updates). This means that for 2015, the maximum annual employee premium is $930.60, while the maximum employer premium is $1,302.84, for that particular employee.
Canada Pension Plan (CPP)
You have to deduct CPP contributions from an employee’s pensionable earnings if that employee:
- is in pensionable employment during the year; and
- is not considered to be disabled under the CPP or the Quebec Pension Plan (QPP); and
- is 18 to 70 years old even if the employee is receiving a CPP or QPP retirement pension. However, there is an exception: do not deduct CPP if the employee is 65 to 70 years old, and gives you Form CPT30, Election to Stop Contributing to the Canada Pension Plan, or Revocation of a Prior Election.
Income Tax
All employees must have income tax deducted from their pay cheque unless the income earned is tax exempt. The federal income tax rates for 2015 are as follows:
- 15% on the first $44,701 of taxable income
- 22% on the next $44,700 of taxable income
- 26% on the next $49,185 of taxable income
- Then, 29% of taxable income over $138,586
For example: If person A was making $60,000 and person B was making $150,000, person A would be taxed 15% on the first $44,701 and 22% on the remaining amount, while person B would be taxed 15% on the first $44,701, 22% on the next $44,700, 26% on the next $49,185, and then finally 29% on the amount remaining.
Remitting the Deductions
It’s important to note that the CRA considers the day the remittance is received by them, as the day the remittance was submitted. If there is a delay between the date that a remittance was sent, and received, the remittance is considered submitted on the date that it was received, regardless of when it was sent.
There are a number of methods to pay the remittance to the CRA, as we’ve included the methods below:
- Online Banking
- Debit Card on the CRA My Payment website – http://www.cra-arc.gc.ca/esrvc-srvce/tx/mypymnt/menu-eng.html
- Credit Card – through services such as ‘plastiq’, a third party provider
- Pre-authorized Debit
Third-party Service Providers – Such as ADP, Ceridian, Nethris, etc. - At a physical location of a Canadian Financial Institution (Bank)
- Mail a Cheque or money order & other documents to the Receiver General
- Pay through a wire transfer
Failure to Deduct
This is a penalty of 10% of the amount of CPP, EI and income tax that was not deducted from employee’s payroll. A second (and all following) failure to deduct in a single calendar year will be assessed a 20% penalty.
Failure to Remit & Late Remittance
A failure to remit penalty is assessed when a company fails to remit payment of deductions on time to the CRA. The penalties for late remittance are very similar to those of the failure to remit. The penalties range from three to twenty percent, depending on the circumstances of the failure. Below are examples of penalties:
- 3% penalty – 1 to 3 days late
- 5% penalty – 4 to 5 days late
- 7% penalty – 6 to 7 days late
- 10% penalty – more than 7 days late
- 20% penalty – assessed more than 1 failure to remit penalty in a calendar year
Other Punishments
Non-compliance with deductions, remittance, and other reporting obligations to the CRA is a serious situation. Non-compliance could also result in fines ranging from $1,000 to $25,000 and up to 12 months of jail time.