CRA Employer Payroll Remittance & Deductions
When a business has employees, the law requires the employer to withhold and remit to the Canada Revenue Agency (“CRA”) certain amounts from gross pay. At very first, you have to register for a payroll program account with the CRA. You have to register if you pay salaries or wages, pay tips of gratuities, pay bonuses or vacation pay, or provide benefits or allowances to employees.
The employer is responsible for properly classifying employees as separate from independent contractors, and withholding the right amounts. Businesses often try to call persons who would be employees under the heading of independent contractor to save money. The classification is a matter of law, and a question of fact. Often this attempt to save on payroll taxes comes back to haunt employers, sometimes forcing them into bankruptcy. The classification of employer and employee can be tricky, but a tax professional will be able to help you make the right decision.
Employers must make deductions from employee pay. Most employees (there are a few exceptions for some deductions) have Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and income tax deducted, withheld, and remitted. These amounts can be calculated using the CRA’s online payroll deductions calculator. Note that there are other payroll taxes that may apply, such as worker’s compensation premiums, but these are not part of the amount deducted and remitted to the CRA. An employee can ask you to withhold less income tax, because of their personal circumstances, by filling out Form TD1 “Personal Tax Credits Return”. This allows them to have access to more of their pay during the year rather than have to wait for a refund after the end of the year.
Depending on the number of employees you have and therefore the amount you remit monthly, you can be either a new small employer remitter, a regular remitter, or one of two categories of accelerated remitters. A regular remitter is a new employer that has monthly average monthly remittance amounts of more than $1,000 and less than $25,000, or a remitter that has been remitting for more than 12 months has had an average monthly remittance of $3,000 or more. As a regular remitter, you have to remit the amounts to the CRA on the 15th day of the month after you pay or give employees their remuneration.
The amounts that are required to be withheld are considered to be held in trust for the government and can be collected by the CRA immediately. The failure to withhold and remit payroll taxes is a common reason a business may get in trouble with the tax man. In a corporation, directors can be personally liable for the failure of the corporation to withhold and remit required amounts. Always seek out a tax professional so you know what your payroll obligations are.