Get ready to make deductions
On this page
- Background
- What to consider when calculating source deductions and contributions
- Your responsibilities
- Deductions to withhold from your employees' pay
- What if you made an error in calculating deductions
- What if you do not withhold deductions
- References
Background
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:
- The employee's situation
- Your situation as an employer or a payer
- The type of employment held by the employee
- The type of payment made
- The province of employment
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)
- Learn about when to deduct CPP contributions, including when to start, stop or restart deducting them: About the deduction of CPP contributions
- Find information about current and past CPP contribution rates, maximum contributions, maximum annual pensionable earnings and exemption amounts (annual and per pay period): CPP contribution rates, maximums and exemptions
- New – 2024 Find information about Second additional CPP contribution (CPP2) rates, maximum contributions and additional maximum annual pensionable earnings (annual and per pay period): Second additional CPP contribution (CPP2) rates and maximums
Employment Insurance (EI)
- Learn about when to start and stop deducting EI premiums: About the deduction of EI premiums
- Find information about current and past EI premium rates, maximum annual premiums and annual insurable earnings: EI premium rates and maximums
Income tax
- Learn about when to deduct federal, provincial and territorial income tax: About the deduction of income tax
- Find information about current and past federal, provincial and territorial income tax rates and income thresholds (tax brackets): Income tax rates and income thresholds
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:
- If you have not filed the information return, refer to: Make corrections before filing
- If you already filed the information return, refer to: Make corrections after filing
What if you do not withhold deductions
The CRA will apply a penalty and charge interest.
Penalty
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
Interest
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.
References
Legislation
- 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)
- Prosecution
- 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)
- Assessment
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