What Are The Required Payroll Deductions In Ontario?

payroll deductions

You pay your staff wages, bonuses, commissions, vacation money, and tips. You provide taxable benefits to them, such as personal use of a vehicle or allowances. You must also withhold and remit payroll deductions.

Employers are responsible for withholding the four sums listed below:

  • the Canada Pension Plan contribution
  • the Employment Insurance premium
  • federal income tax
  • provincial and territorial income tax

Employers must report these deductions to the Canada Revenue Agency (CRA) together with their part of Canada Pension Plan and Employment Insurance contributions.

Other payroll deductions, like payments to a private pension plan or union dues, may also be needed. However, those deductions are not paid to the government because they are based on previously agreed contracts and working conditions.

Steps for new employers

New employers must first register a payroll programme account to remit deductions to the CRA.

Following that, the employer must request that the employee supply their social security number and complete Form TD1—Personal Tax Credits Returns.

Payroll deductions belong to the government, and the monies collected must be maintained separately from your company's operational capital. These sums must not be included in assets that are in the process of being liquidated, assigned, receivership, or bankrupted. It is strongly advised that all withheld funds be put into a separate bank account until the time comes to remit them.

You must file a summary of all workers' income and deductions at the end of the year. Each employee's income and deductions must be reported on a T4 or T4A slip. You will provide your employee with two copies, maintain one for your records, and send a copy of the T4/T4A slips for all of your employees to the CRA. To avoid fines, they must be received by the last day of February of the following year.

How much do you have to deduct?

Each pay period, payroll deductions are computed. To assist you, the CRA website offers an online calculator for calculating federal, provincial, and territory payroll deductions. It may also be used to compute Ontario's necessary deductions, such as the Ontario Pension Plan and Employment Insurance at the mandated rate.

The following are examples of payroll deduction rates in effect in 2021.

We've produced a table that lists all payroll taxes for 2022.

Employer Health Tax

  • This is an employer-paid tax that is not taken from employees' pay.
  • The exemption threshold is one million dollars.
    • The tax rate on earnings above the threshold ranges from.98% to 1.95%, depending on how much the employer earns beyond the threshold.
  • For further information, please visit the Ministry of Finance's website.

Employment Insurance

  • Maximum insurable earnings: $60,300
  • Maximum employee premium: $952.74
  • Maximum employer premium: $1,333.84
    • Employee: 1.58
    • Employer: 1.58 x 1.4 = 2.21%

Some employees connected to the employer may be excluded from having to pay for employment insurance.

CPP

  • Maximum pensionable earnings: $61,600
  • Basic exemption: $3,500
  • Maximum employee premium: $3,499.80
  • Maximum employer premium: $3,499.80
  • Self-employed maximum premium: $6,999.60
    • Employer and employee contribution rate: 5.70%
    • Self-employed: 11.4%

Federal  & Provincial income tax

Basic deduction:

  • Federal: $155,625 or less enter $14,398

For deductions based on different income levels, see:

Federal: TD1 2022 Personal Tax Credits Return and TD1-WS 2022 Worksheet

Provincial: TD1ON 2022 Personal Tax Credits Return

  • Provincial: $11,141

Workers' Compensation WSIB

  • Maximum insurable: $100,422 per person
    • Based on classification. See premium rates for 2022.

Ontario's minimum wage is $15.00 until October 1st, 2022. The Consumer Price Index will raise it for 2022 after October 1st.

How frequently are deductions paid to governments?

The frequency with which payments are made to governments varies. Payments can be made monthly (on the 15th of the month following) or quarterly (on January 15th, April, July and October). Employers may also make immediate remittances up to two or four times per month.

Is it necessary to withhold taxes if I give myself a salary?

If the business is a sole proprietorship or partnership, deductions will not be submitted to the CRA via the payroll account. Payments are made when the T1 income tax and benefit return is filed for these enterprises unless the single proprietor or partner is obliged to pay in installments.

Entrepreneurs who work for their incorporated business will have their remuneration considered as employment income, and deductions will be needed. If an entrepreneur owns more than 40% of the common stock (with voting rights), they are exempt from paying Employment Insurance payments and is not eligible for Employment Insurance benefits. However, there are unique Employment Insurance benefits available to self-employed workers.

What if you don't set up payroll deductions?

Employers that fail to withdraw the required contributions or remit the amounts withheld from their employee's salary should be on the lookout.

The CRA may levy a penalty equivalent to 10% of the amount that should have been withheld for the Canada Pension Plan, Employment Insurance, or income tax.

If you are subject to this penalty more than once in the same calendar year, the CRA will assess a 20% penalty if the failure was voluntary or due to gross carelessness. If an employer fails to withhold deductions or makes deductions but fails to remit them, the employer is responsible for the amount that should have been paid.

The CRA has the authority to take legal action, such as garnishing your wages or other sources of income or seizing and selling property.

More information on this issue can be found on the CRA website. In addition, the CRA provides a Liaison Officer service to assist companies in better understanding their payroll deductions and income tax obligations.

Written By:
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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