What Canadian Taxation Rules exist for Payroll?
The Canadian Revenue Agency (CRA) stipulate the following procedure for companies establishing payroll.
• Employers paying any amounts relating to employment must register for payroll
• Set up your new employee by obtaining their Social Insurance Number (SIN) within three days of starting work, and complete Form TD1 Personal Tax Credits Return within seven days of starting and before you begin salary payments
• Open a payroll program account and obtain the payroll number for making and remitting deductions. Employers need a program account to remit and file the return. Register for the program account as soon as you start hiring employees
• Calculate deductions and contributions for the Canadian Pension Plan (CPP), Employment Insurance (EI) and income tax
• Send payroll information returns. Complete and file year-end summary of all employees’ pay and deductions. Pay (remit) deductions for CPP, EI and income tax. When you remit depends on business category and payment schedule. Usually you have to remit your deductions by the 15th of the month after you pay your employees. Remuneration includes taxable benefits and allowances. If you are a new small employer, different rules may apply.
What Canada Payroll Options are available for Companies?
Companies expanding their operations into Canada open up a world of opportunity – but challenges come alongside the benefits. Payroll management is among those challenges, whether your company is considering moving employees abroad or hiring new staff in-country. Employment laws, payroll regulations and withholding tax requirements vary between federal government and the 10 provinces and three territories.
Bradford Jacobs’ payroll solutions will navigate around these potential pitfalls effectively and efficiently by putting into action our comprehensive knowledge of federal and provincial tax and payroll.
As part of our service, we file returns and associated payments for wages tax and social security contributions directly from our payroll system to the relevant authorities. Staying up to date with federal and provincial laws is a vital element of our payroll services. Our role liaising with the Canada Revenue Agency includes:
• Confirming if you need to make payroll deductions, but if you pay any amounts relating to employment you must register for payroll
• Obtaining the employee’s Social Insurance Number (SIN) within three days of their starting work, and completing Form TD1 (Personal Tax Credits Return) within seven days of starting and before paying the employee
• Obtaining a Business Number (BN) from the federal government or a Québec Enterprise Number for those incorporating in that province
• Opening a payroll program account to obtain your payroll number needed to send in deductions and file returns. We register for the program account as soon as hiring begins
• Calculating deductions and contributions for Canadian Pension Plan (CPP), Employment Insurance (EI) and income tax
• Submitting payroll information returns, completing and filing year-end summary of all employees’ pay and deductions and paying source deductions for CPP, EI and income tax. In most cases deductions are filed by the 15th of the month after employees are paid. Remuneration includes taxable benefits and allowances. Different rules may apply to Small and Medium Enterprises (SMEs)
Outsourcing payroll is the cost-effective, time-saving and simple method of promptly paying employees, filing tax returns, fulfilling social insurance requirements and ensuring compliance with the layers of Canadian federal and provincial laws. Bradford Jacobs provide one hundred per cent solutions to remove the stress from what would be a major and expensive commitment.
What is required to set up Payroll in Canada?
Companies expanding into Canada must meet basic legal requirements with running payroll, in addition to complying with minimum wage, overtime pay and employee benefits which vary between federal government and provincial regulations.
All companies must be established as legal entities to process payroll, either under federal or provincial/territorial laws. Federal incorporation allows a business to trade overseas and in any Canadian province or territory; provincial incorporation allows a company to trade overseas but only in the Canadian province or territory where they are incorporated.
Employers running their own payroll must check every employees Social Insurance Number (SIN) card within three days of starting work and ensure the employee completes Form TD1 for personal tax credits return.
The TD1 governs the amount of tax withheld from employment or other income, such as a pension scheme. Taxes must be remitted to federal or provincial authorities at the risk of severe penalties for failure to file on time. Employers must also withhold contributions for Canada Pension Plan (CPP) and Employment Insurance premiums.
Companies must obtain a Business Number (BN) from the federal government (or a Québec Enterprise Number). The BN number is generated when the business registers with the Canada Revenue Agency.
The BN number is required to pay Goods and Services Tax (GST), corporate tax and import/export taxes. The BN number may also be required to collect and remit certain provincial taxes relating to employees’ compensation insurance and health schemes.
Other payroll requirements include employees being paid on a regular weekly or monthly basis, and that their payment advice includes all details of wages, overtime and holiday pay.
What Entitlement and Termination Terms feature in Canadian Payroll?
The structure of laws and regulations covering termination and entitlements in Canada include:
• The National Minimum Wage (NMW) at federal level is CAD11.06 per hour. Among the provinces and territories the NMW ranges from CAD10.70 in New Brunswick to CAD14.60 for British Columbia and CAD15.40 for home workers in Ontario
• Sick leave legislation differs between Canadian provinces and territories and there were moves during 2020 to unify guidelines. Nationally, under Canada’s Labor Code, five days’ leave in a calendar year are allowed for sick leave or leave related to the health or care of family members, including three paid days after a minimum three months continuous employment
• Usual working hours in a federally-regulated industry are eight in 24 consecutive hours, 40 hours in a week
• Federally regulated employees have two weeks’ annual vacation after one year’s employment with that employer. After five consecutive years with the same employer, entitlement rises to three weeks
• Employment Insurance (EI) parental benefits apply for a maximum 35 weeks. Payments are made within 52 weeks (12 months) of the week the child was born or the week a child was adopted. EI extended benefits can be paid for 61 weeks
• Canadians and non-nationals working there must be free from discrimination in the workplace. The Canadian Human Rights Act prohibits discrimination on the basis of gender, race, ethnicity and other grounds
• An employer must provide an employee with at least two weeks written notice of their intention to terminate employment. In lieu of written notice, the employer must pay two weeks’ wages at the regular rate. Employers must give severance pay regardless of the length of service or the company’s size. Written notice or pay in lieu does not apply in certain circumstances - if the employee has not completed three months’ continuous service, is being dismissed for just cause or the contract specifies an end date for employment
Bradford Jacobs have more than 20 years’ experience as front line international payroll providers … essential experience for companies expanding their operations into Canada. Employment, payroll and tax laws are applied by the federal government as well as individual provinces and territories. Under tax collection agreements, the Canada Revenue Agency collects taxes and remits them to the provinces, except for Québec.
Other areas of tax administration also demand careful planning. Provincial Sales Tax (PST) varies between provinces; for example, in traditionally oil-rich Alberta no sales tax is collected whereas in Québec sales tax is nearly 10%. Corporate tax is generally 15% at the federal level, but again provinces can levy additional corporate tax, usually at two rates.
The mysteries of Canadian and Québec taxation can be daunting – but not for the taxation and payroll specialists at Bradford Jacobs. We remove the worry of complying with Canadian taxation, payroll and employment laws to safeguard your expansion plans.
Staff are recruited through Bradford Jacobs’ global Professional Employer Organization (PEO) network. Our Employer of Record (EOR) teams take full responsibility for ensuring compliance with every level of employment and payroll legislation, while the employee remains under the daily operational control of your parent company.
In Canada, taxpayers pay income tax to the federal government and to the government of the province/territory where they reside. In all provinces/territories, except Québec, the federal government collects the provincial/territorial tax and gives it back to them in the form of various programs.
Canada’s income tax system is graduated, meaning low-income earners are taxed at a lower percentage than high earners. Income tax rates for 2020 were set at:
% Rate From To
(Figures in Canadian Dollars)
15% $0 $48,535
20.5% $48,535 $97,069
26% $97,069 $150,473
29% $150,473 $214,368
33% $214,368 and above
All Canadian employers and employees must pay into the Employment Insurance (EI) fund, which provides income for workers who lose their jobs, and into the Canada Pension Plan (CPP). Québec has its own pension plan. In 2020 employee EI contributions were 1.58%, with a maximum employee premium of Canadian dollars (CAD) 856.36 and a maximum employer premium of CAD1,198. The CPP rate is 5.25% for both employers and employees with maximum pension earnings capped at CAD55,900.
There are also tax brackets and credits applying to Canada’s 10 provinces and three territories complementing federal arrangements. The deadline for filing is April 21 of following year.
Withholding Tax is the amount deducted by employers from each salary payment and forwarded to Canada’s Revenue Agency.
The basic rate of 38% is reduced to a net rate of 15% after general tax reduction. The ‘small business deduction’ for Canadian-controlled private corporations was 10% from January 2020, although previous rates may apply depending on when returns were filed.
• Sales Taxes such as Goods and Services Tax (GST), Harmonized Sales Tax (HST) and the Provincial Sales Tax (PST)
• Property taxes, usually charged by provincial and local authorities on the value of land and buildings
• Customs duties or tariffs on certain imports and exports
• Contributions by employers to certain social security plans
• Health service taxes charged by certain provinces to access their health care system