Payroll taxes are one of the biggest responsibilities for small business owners in Canada. These include contributions to federal programs like Canada Pension Plan (CPP) and Employment Insurance (EI) as well as income tax deductions. If you don’t get it right you’ll get penalties, interest and even audits from the CRA. Consult with a small business accountant Mississauga to help you understand and navigate payroll taxes.
What are Payroll Taxes?
Payroll taxes in Canada consist of:
- Canada Pension Plan (CPP): Employees and employers contribute to the CPP (except in Quebec where it’s the Quebec Pension Plan (QPP)). The contribution rate is a percentage of the employee’s earnings up to a yearly maximum. Employers must match what their employees contribute.
- Employment Insurance (EI): EI contributions provide temporary income support to employees if they lose their job or experience certain life events such as parental leave. Employers deduct a percentage of an employee’s insurable earnings and contribute 1.4 times what the employee contributes.
- Income Tax Deductions: Employers must withhold federal and provincial/territorial income taxes from employee wages. These amounts are based on the employee’s income and information on their TD1 form (personal tax credits return).
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Why Get Professional Help
Payroll taxes can be a big time suck for small business owners with limited resources. A small business accountant Edmonton can get you CRA compliant, save you time and reduce administrative work, and minimize errors that will cost you penalties.
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How to Navigate Payroll Taxes
- Register for a Payroll Account with the CRA: To meet payroll tax obligations small business owners must first open a payroll account with the CRA. This account allows you to remit withheld amounts and employer contributions.
- Get the Deductions Right: Use the CRA’s online tools like the Payroll Deductions Online Calculator (PDOC) or payroll software to calculate CPP, EI and income tax deductions.
- Keep Records: The CRA requires employers to keep detailed payroll records, including employee information (e.g. name, SIN), hours worked and wages paid, deductions and remittances, copies of T4 given to employees. Note these records should be kept for at least 6 years in case of an audit.
- Remit Payroll Deductions on Time: Employers must remit payroll deductions including their contributions to the CRA by specific deadlines. Remittance schedules vary depending on the size of the business and the total amount of payroll deductions. Late payments will result in penalties and interest.
- Give Employee Tax Forms: At the end of each year employers must give T4 slips to employees showing their earnings and deductions. These slips must also be submitted to the CRA.
Common Issues and How to Fix Them
- Complex Rules: Payroll tax rules vary between provinces and territories, especially for businesses in Quebec. Use province specific resources or a tax professional to get it right.
- Calculations Gone Wrong: Mistakes in calculating deductions or remittances will get you penalties. Invest in good payroll software or a bookkeeper to minimize mistakes.
- Cash Flow Problems: Timely remittances require good cash flow management. Late remittances will incur penalties up to 10% of the amount owed. Set up a payroll tax reserve fund to avoid delays.
Bottom Line
Payroll taxes are a part of being a small business in Canada. Knowing your obligations, being organized and using the tools or services available to you will get you compliant and back to growing your business. Good payroll management not only keeps you CRA compliant but also your employees happy.
