Payroll Tax vs Income Tax: How They Work for Canadian Payroll

Relationship between Payroll Tax and Income Tax

• Income Tax: Deduction employers must withhold from each paycheck.
• Payroll Taxes: Include Income tax, CPP contributions, EI premiums, and provincial employer taxes.
• The CRA groups them under 'employer deductions and remittances.'

Employer Responsibilities for Income Tax

• Must deduct appropriate income tax each time they pay an employee.
• Includes withholding federal and provincial/territorial taxes.
• Contractors manage their income tax amounts themselves.
• Sole proprietors have different rules as they are both employer and employee.

Handling Withheld Tax Money

• Remit withheld taxes to the CRA regularly, usually monthly or quarterly.
• Payments must be made by the 15th of each month or quarter.
• Manual payroll requires managing every step; software like Wagepoint automates much of the process.

Determining Withholding Amounts

• Use CRA payroll deduction tables and employees’ TD1 forms.
• Tables provide federal and provincial/territorial tax deduction rates.
• TD1 forms include claimed deductions.

Business Registration with CRA

• Business receives a unique 9-digit number upon registration.
• Requires a payroll deductions (RP) account for payroll processes.

CRA's Grouping of Taxes

• Groups income tax and payroll taxes together.
• Employers Guide to Payroll Deductions and Remittances is a key resource.

Differences Between Payroll and Income Taxes

• Income Tax: Withheld by employer.
• EI and CPP: Require employer contributions along with employee deductions.
  • CPP: Employer matches employee deductions.
  • EI: Employer pays 1.4x the employee’s contribution.

Breakdown of Canadian Payroll Taxes by Province and Territory

• Various automation levels for remittance and reporting through Wagepoint.
• Each province/territory has specific requirements and automation capabilities.
  • Example: Alberta and British Columbia have fully automated processes for income tax, CPP, and EI, but worker’s compensation requires client reporting.

Reporting Income and Payroll Taxes

• Frequency of sending payroll taxes to CRA depends on historical collections: quarterly, monthly, bi-monthly, or weekly.
• YTD amounts are crucial for accurate year-end reporting.
• T4 summary reports must be filed at year-end, with T4s sent to employees by February's last business day.

Changing Payroll Providers

• Requires accurate YTD amounts for new providers or software.
• Issuing ROEs is necessary when switching providers or during employment interruptions.

Automation Benefits

• Automating processes with software like Wagepoint reduces errors and streamlines payroll management.
• Initial setup involves entering withholding rates and reporting periods for smooth operation.

Conclusion

• Understanding payroll vs. income tax processes and responsibilities helps in managing payroll effectively.
• Automation and software solutions like Wagepoint can significantly ease the administrative burden.