How to Calculate Payroll Deductions for Small Business in Canada
If your business has employees, you will need to run a payroll. Here’s a quick summary on how to calculate payroll deductions for small business in Canada.
The 5 Steps to Running Payroll
For business owners in Canada here are five steps on how to calculate payroll deductions:
1. Open a payroll account with the Canada Revenue Agency (CRA)
A CRA payroll deductions program account is needed before remitting your payroll deductions to the CRA. If you have registered for other CRA programs before and have a business number, the only thing you are required to do is to add the payroll deductions to the existing program accounts. If you do not have a business number, you will need to acquire one first through registering online, contacting CRA via 1-800-959-5525 or mailing/faxing your details to the nearest tax service office.
2. Collect the mandatory information from employees
During the hiring process, you must have gone through the new employees’ SIN card, recorded their name and also SIN exactly the way they look on the card. Be careful to look out for the Social Insurance Numbers (SIN) beginning with “9” because it means you cannot hire them for they are not permanent Canadian residents. You should ensure that the employees have filled out the proper provincial and federal Form TD1 since it determines how much tax will be deducted from their income.
3. Make the proper payroll deductions
Before making deductions, ensure that you add taxable benefits to your employees pay. Anything that you give the employees on top of their wages is a taxable benefit. Once you have accounted for all taxable benefits and wages, then you are ready to make your Canadian payroll deductions.
4. Remit the deductions to CRA
Remittance can be done electronically or through paper remittance vouchers. After that, your transactions and statements are sent through your online “My Business Account”. New employers are classified as regular remitters, and therefore you need to remit your reductions so that CRA gets them before or on 15th of the following month.
5. Complete all T4 slips and information returns
The last step on how to calculate payroll deductions, as a Canadian employer is to complete all the T4 slips for every worker and also the T4 summary form. You are required to file the T4 information return and then give the T4 slips to the workers before or on the last day of February of the following calendar year.
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