Get ready to make deductions

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After you have determined that you are an employer, a trustee or a payer of other amounts  and have opened a payroll account , you have to calculate the CPP contributions, EI premiums, and income tax to deduct from amounts you pay your employees.

You also have to calculate your share of CPP contributions and EI premiums.

What to consider when calculating source deductions and contributions

When you calculate source deductions and contributions, you have to consider all of the following:

Your responsibilities

Every amount you deduct or withhold or collect as an employer or a payer is deemed to be held in trust for the government until you remit the amount to the government in the manner and at the time prescribed by income tax law. Such amounts constitute a separate fund that is not part of your property.

Deductions to withhold from your employees' pay

Canada Pension Plan (CPP)

Employment Insurance (EI)

Income tax

What if you made an error in calculating deductions

You may realize that you have overdeducted or underdeducted, EI, CPP or income tax. As soon as you know that the required amount was not deducted, you should notify your employee.

To correct a deduction error or a salary overpayment:

What if you do not withhold deductions

The CRA will apply a penalty and charge interest.


A penalty is assessed when the required CPP, EI, and income tax were not deducted. The penalty is:

  • 10% of the amounts that were not deducted
  • 20% of the amounts that were not deducted for a second or additional failures in a calendar year, if they were made knowingly or under circumstances of gross negligence


If you do not pay an amount that is due, the CRA may apply interest from the day the payment was due.

  • The CRA sets the interest rate for every calendar quarter, based on prescribed interest rates
  • The interest is compounded daily
  • The CRA applies interest to late payment of assessed penalties

The interest rates are announced in the month preceding each calendar quarter.



ITA: 153(1)
Requirement to deduct and remit
ITA: 161(11)(c)
Interest on penalties
ITA: 227(8)(a)
Failure to deduct – 10% penalty
ITA: 227(8)(b)
Failure to deduct – 20% penalty (gross negligence)
ITA: 227(8.3)
Interest on amounts not deducted or withheld
ITA: 238(1)
ITA: 248(11)
Compound interest
ITR: 4301
Prescribed rate of interest
CPP: 21(1)
Requirement to deduct and remit
CPP: 21(2)
CPP liability for failure to deduct and remit
CPP: 21(6)
Failure to remit – Interest
CPP: 21(7)(a)
Failure to remit – 10% penalty
CPP: 21(7)(b)
Failure to remit – 20% penalty (gross negligence)
CPP: 22(1)
Minister may assess amount payable
EIA: 82(1)
Requirement to deduct and remit
EIA: 82(4)
EI liability for failure to deduct and remit
EIA: 82(8)
Failure to remit – Interest
EIA: 82(9)(a)
Failure to remit – 10% penalty
EIA: 82(9)(b)
Failure to remit – 20% penalty (gross negligence)
EIA: 85(1)

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