Running a business in Canada comes with the critical responsibility of managing payroll. When you hire employees, you act as a trustee for the Canada Revenue Agency (CRA). That means calculating, withholding, and remitting mandatory source deductions on time every pay period.

Missing these steps can trigger steep penalties. Here is a straightforward breakdown of source deductions, remittance schedules, and essential best practices for Canadian employers.

1. Setting Up Your CRA Payroll Account

Before processing your first pay run, you need an active Payroll Program Account attached to your 9-digit Business Number (BN).

• How to Register: You can open your account online through the CRA’s Business Registration Online (BRO) system, via My Business Account, or by calling the CRA directly.
• Account Format: Your 15-character identifier will look like 123456789 RP 0001 (where “RP” signifies a payroll account).

2. The Core Source Deductions

Every time you issue a paycheck, you are required to withhold specific statutory amounts at the source:

Canada Pension Plan (CPP)

• Employee Portion: Deducted from employee earnings exceeding the annual basic exemption ($3,500) up to the Year’s Maximum Pensionable Earnings (YMPE).
• Employer Contribution: As an employer, you must match the employee’s base CPP contributions dollar-for-dollar.
• CPP2 (Enhanced CPP): For earnings above the YMPE up to the Second Earnings Ceiling, additional CPP2 deductions apply for both employee and employer.

Employment Insurance (EI)

• Employee Portion: Deducted on all insurable earnings up to the Maximum Insurable Earnings (MIE) limit.
• Employer Contribution: Employers pay 1.4 times the employee’s deduction amount, unless eligible for a reduction through an approved short-term disability plan.

Income Tax

• Deduct federal and provincial/territorial income tax based on the employee’s completed Form TD1 (Personal Tax Credits Return) and their tax bracket.
• Note: Employers in Quebec withhold Quebec Pension Plan (QPP), Quebec Parental Insurance Plan (QPIP), and Quebec provincial tax, remitting those portions directly to Revenu Québec.

3. Understanding Remittance Schedules

Your remittance schedule is determined by your Average Monthly Withholding Amount (AMWA)—the total CRA source deductions calculated over a two-year historical window.

Remitter Type	Qualification / Threshold	Remittance Due Date
New / Regular	New employers or AMWA under $25,000	15th day of the month following the month deductions were made
Quarterly	AMWA under $3,000 with a perfect 12-month compliance record	April 15, July 15, October 15, January 15
Accelerated (Threshold 1)	AMWA between $25,000 and $99,999.99	• Deductions from 1st–15th: Due 25th of same month • Deductions from 16th–end: Due 10th of next month
Accelerated (Threshold 2)	AMWA of $100,000 or more	3rd business day after the end of each weekly period (1st–7th, 8th–14th, 15th–21st, 22nd–end)

Important Note: If a due date falls on a weekend or a CRA-recognized public holiday, your payment is considered on time if received on the next business day.

4. How to Remit and Forms to Use

When making payments to the CRA, you must include the correct statement or voucher:

• Form PD7A: Statement of Account for Current Source Deductions (used by regular and quarterly remitters).
• Form PD7A(TM) or PD7A-RB: Remittance booklets used by accelerated remitters.

Remittance Channels:

1. Online Banking: Add “CRA (Revenue) – Payroll Source Deductions” as a bill payment through your financial institution.
2. CRA My Payment: Use an eligible debit card or Visa/Mastercard Debit via the CRA website.
3. Pre-Authorized Debit (PAD): Set up recurring payments directly through CRA’s My Business Account.

Handling “Nil Remittances”

If you had no active employees or made no payouts during a given period (e.g., seasonal businesses), you must still file a Nil Remittance report by your due date to avoid automated non-filer notices.

5. Penalties for Non-Compliance

The CRA treats trust funds strictly. Remitting late or failing to deduct carries immediate, tiered penalties:

• 1–3 days late: 3% penalty
• 4–5 days late: 5% penalty
• 6–7 days late: 7% penalty
• More than 7 days late (or unpaid): 10% penalty
• Repeated or gross negligence: Up to 20% penalty

Interest compounds daily on outstanding balances and penalties from the day after the due date.

Best Practices for Payroll Peace of Mind

1. Keep Source Deductions Separate: Hold collected source deductions in a separate bank account from your main operating funds.
2. Use the CRA PDOC Tool: Utilize the free Payroll Deductions Online Calculator (PDOC) or reliable, updated payroll software to avoid calculation errors.
3. Reconcile Annually: Perform regular internal audits to prevent Pensionable and Insurable Earnings Review (PIER) notices during annual T4 filings.