Payroll Taxes

New Business Tool Kit

Insights
| 10/4/2020
Irrespective of the form of business in which you operate, if you are going to have employees then you will have to contend with payroll taxes. This brief summary will give you some guidance in the rules and regulations of the various taxing authorities.

Available Publications

T4001, Employer’s Guide to Payroll Deductions and Remittances, covers the payroll tax reporting and withholding on the Canada Revenue Agency (CRA) website.

Tax Withholding Requirements

Every employer is required to withhold income tax, Employment Insurance premiums, and Canada Pension Plan payments from employees’ pay. Calculation of the appropriate amounts and the corresponding employer amounts is determined by using the employers’ guide. The funds withheld are held in trust for the government and must be remitted to Canada Revenue Agency in accordance with the regulations as specified in the guide.

Other Tax Requirements

Whenever a wage payment is made, the employer must provide the employee with a statement of the gross wages and specific deductions. Use of the TD1 Form submitted by the employee and the tax tables provided in the employer’s tax guides will enable you to determine the correct income tax to withhold.

Penalties and interest are regularly imposed by Canada Revenue Agency for failure to remit the correct amounts in a timely fashion.

The employer must also furnish a T4 Form to each employee showing remuneration and withheld taxes for each calendar year.

The payroll tax requirements and the work related to ensuring compliance are quite cumbersome and complicated. Once a business employs more than a few people, we recommend a qualified payroll service be used, because it has generally been our experience that the cost of the service is far outweighed by the personnel and management time required to operate the payroll system in-house.

Other Payroll Considerations

In addition to the rules around payroll taxes, it will be essential for an employer to understand the labour laws specific to each province/territory in which their business operates. Failure to comply with rules such as those involving working hours, overtime pay, and vacation pay can be costly. Provincial and territorial websites like Gov.bc.ca, Alberta.ca, Yukon.ca, and Gov.nt.ca, have such information specific to small businesses.

 

The CRA has an online Payroll Deductions Calculator which can be a helpful tool for start-ups

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