Are you a new entrepreneur working to get into the payroll taxes? Well, we can understand that it’s a complicated subject, especially for small businesses, so we’ve put together this manual.
Canadian businesses seeking long-term success must manage payroll correctly from the start. This includes CRA requirements, including payroll deductions (excluding Quebec enterprises with different restrictions). But what are payroll remittance and what are their types? How should Canadian employers process payroll? This manual will help you comprehend the payroll process, whether you’re a business owner attempting to pay your employees properly or an employee trying to figure out where your money is going.
When a Canadian business pays wages or benefits to an employee, business owners must remit a certain amount to the Canadian Revenue Agency (CRA).
Employers are responsible for withholding and remitting to CRA all applicable taxes from employee salaries, wages, and other taxable benefits. Remunerations encompass all forms of wage and benefit payments made to employees, whether mandated by law or not. Income from pensions, bonuses, commissions, and other taxed sources are included.
Depending on the company’s remitter status, these amounts must be computed and withheld from employees’ taxable income before being remitted to the CRA periodically.
To manage payroll; you need a CRA account. Before registering, determine your contributing status—employer, trustee, or payer—
To legally operate in Canada, businesses must set up a payroll program account with the Canada Revenue Agency (CRA). This account is necessary for tax and other governmental payments to be made by an employer.
Employee’s SIN, Personal Tax Credits Return, and a completed Form TD1 will be needed to set them up for payroll account.
You can use a manual calculator or the CRA’s online deductions calculator to determine payroll deductions and contributions.
For deductions, you’ll need to find out your remitter type (i.e., quarterly, regular, threshold 1 accelerated, or threshold 2 accelerated), which depends on your average monthly withholding amount (AMWA).
Lastly, Finalise and submit a CRA year-end summary of employee pay and deductions (Reyes, 2022).
If you meet these criteria, you are considered a regular remitter (not an accelerated remitter):
Quarterly remitting for new small employers
Payroll deductions can be submitted quarterly (once every three months) rather than monthly for the first year if you are a new small employer who will be paying compensation (Agency, 2022).
If you fulfill both of the following requirements, only then will you be considered eligible:
*Your Monthly Withholding Amount (MWA) is the sum of all payroll deductions, including CPP, EI, and income tax, plus your part of CPP and EI for the month*
The quarters are as follows:
The deductions must be paid on or before the 15th day of the month immediately following the conclusion of each quarter. The deadlines are April 15, July, October, and January (Agency, 2022).
Accelerated remitters are divided into two groups.
Threshold 1 remitters must pay payroll processed in the first 15 days of the month by the 25th of the same month. For payrolls processed after the 16th of the month, remittances and payments are due by the 10th of the month (Agency, 2022).
Threshold 2 remitters must pay on the third working day (excluding Saturdays, Sundays, and public holidays) after the 1st- 7th, 8th- 14th, 15th- 21st, and 22nd- last day of the month. To put it another way, the payment must be processed by the third business day after the week in which the payroll was processed (Agency, 2022).
To avoid incurring penalties, remitters at the Threshold 2 level are expected to make their payments and remittances through a financial institution at least one full day before their due date.
Methods of payment may include:
The following are some of the tools that are utilized during the process of remitting payments:
Your payroll deductions, also known as source deductions, must be maintained in trust within an account distinct from your regular operating account. If payments are missed or made late, there will be a fine, and there will also be daily compound interest added to any outstanding sum that is more than $500 (Mire, 2023).
The current penalty structure of the Canada Revenue Agency (CRA) is as follows:
Starting a payroll in Canada requires retaining all relevant business records and information in one easily accessible location. Unless otherwise authorized by the CRA, all payroll-related documents must be stored at your Canadian business or residence.
Agency, C. R. (2022, November 1). Employers’ Guide – Payroll Deductions and Remittances. https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4001/employers-guide-payroll-deductions-remittances.html#P1428_154226
Mire, M. (2023, March 20). Payroll remittances and deductions: A definitive guide. https://wagepoint.com/blog/what-you-need-to-know-about-your-payroll-remittance-schedule/#:~:text=Payroll%20remittances%20in%20Canada%20refer,Employment%20Insurance%20(EI)%20premiums.
Reyes, W. (2022, April 5). Calculating payroll deductions in Canada – humid blog. https://www.humi.ca/blog-post/calculating-payroll-deductions-in-canada