How to Manage and Calculate Canadian Payroll Taxes

Running payroll in Canada isn’t a one-size-fits-all scenario. From the intricacies of Quebec’s unique pension plan to the nuances of employer health tax in Ontario, each region adds layers of complexity to your operations.

At Deel, we help employers easily and compliantly hire and pay Canadian employees. In this article, we cover everything you need to know including the registration process, federal and provincial rates, and key deductions.

Understanding Canadian payroll taxes

All employers must manage payroll taxes on behalf of their Canadian employees. If you’re unsure whether this applies to you, the government clarifies that an employer is anyone who pays salaries, bonuses, and benefits to workers within the country.

Canada has payroll tax obligations at the federal level. This includes income tax withholding and contributions to both the Canada Pension Plan (CPP) and Employment Insurance (EI). By managing these taxes, you ensure workers have paid what they owe to the government and funded essential programs for retirement, unemployment, and parental leave.

In addition, most Canadian provinces impose payroll taxes beyond the federal requirements. Tax rates and rules differ between locations so you must account for these variations.

For example, Ontario has an Employer Health Tax (EHT) to help fund its public healthcare system. The neighboring province of Manitoba has the Health and Post-Secondary Education Tax Levy (HE Levy) which also covers education.

Quebec is a special case. While residents are still required to pay federal income tax, they pay into the Quebec Pension Plan (QPP) instead of the CPP. The province also has a partially separate insurance program known as the Quebec Parental Insurance Plan (QPIP).

Canada’s payroll tax rates for 2025

Canada has a progressive tax system. You must apply the rate for each portion of the employee’s income up to a certain threshold after deductions, credits, and exemptions have been withheld.

Here are the rates for 2025:

Provincial tax withholding rates

Canadian employers must withhold the provincial tax on top of the federal one. While most provinces follow the same progressive tax system, they have widely varying rates.

Canada’s contribution rates for 2025

Aside from withholding income tax, Canadian employers are responsible for managing employee contributions. Here are the federal programs to be aware of:

Canada Pension Plan (CPP) rates

Workers earning over $3,500 per month must make contributions to the CPP. The only exceptions are those under the age of 18 or over 70.

Every year, the Canadian federal government sets a new rate for the CPP. The current rate is 5.95% up to a maximum limit of $4,034.10 as of January 2025.

Employers and employees share responsibility, with each paying half.

Employment Insurance (EI) rates

EI is structured differently from CPP. Canadian workers must start making contributions from the first dollar they earn and there are no age limits.

In addition, employers are responsible for a higher ratio of these contributions. Employees pay a fixed percentage of their insurable wages and employers pay 1.4 times that amount.

As of January 2025, the EI rate is 1.64%. It’s a reduced rate of 1.31% in Quebec as the QPIP program already covers their parental leave benefits.

Provincial benefit programs

Most provinces and territories require residents to make contributions to local programs. However, the rates tend to be lower, generally falling between 1% and 5%.

Calculating and deducting payroll taxes correctly

As Canada has so many different rates, calculating payroll deductions is complex. The task becomes even more challenging when you have team members scattered across various provinces and territories.

Employers have three different options:

Payroll deductions tables

Calculate taxes using the formulas given by the CRA. You can download tables for both federal deductions and provincial deductions from the official website.

However, the CRA explicitly says this option is for companies with their own in-house payroll solution. Other businesses are unlikely to have the resources and expertise needed to understand and apply the formulas correctly.

Payroll Deductions Online Calculator (PDOC)

Enter all your employee’s information into the PDOC and download the results. This involves answering a series of questions about the worker, their salary, and their benefits.

According to the CRA, your printed PDOC results aren’t a substitute for your statement of earnings (the equivalent of a payslip). Instead, your company must create its own version.

Outsource payroll

Partner with a global payroll provider like Deel. We use the CRA formulas to calculate rates and determine employer and employee contributions. Afterward, we automate payments and withholding and send all your Canadian team members their statement of earnings for the pay period.

How to register for payroll taxes in Canada

When you start paying your Canadian workers, you must open a payroll account with the Canada Revenue Agency (CRA). Here’s how to do it in four steps:

1. Get a business account

If you haven’t already, apply for your business number (BN) using the Business Registration Online (BRO) portal.

Note: There’s a separate portal for non-resident companies on the same page. Use this if your business will be headquartered outside Canada, not if the owners are foreign or based abroad.

After verifying your application, BRO sends you a nine-digit number. Keep this somewhere secure but easily accessible—you need to refer to it while opening your payroll account and applying for other Canadian business accounts and programs.

2. Collect all your business and employee information

Ensure you have the following details on hand before you file your application. Also, double-check everything is accurate and up-to-date as making corrections is challenging once you’ve submitted the form:

• Your business name and number
• Your physical address
• Your mailing address (if different)
• The date of your first payroll
• Any months already covered
• The pay frequency you use
• The number of employees
• The name of your payroll service provider
• The name of your parent organization (if applicable)
• The country of your parent organization (if foreign-owned)

3. File the online application

Visit the online portal to register for your payroll account. All you need to do is follow the steps, enter your details, and upload documents where instructed.

As before, you must access a different portal on the same page if you have a non-resident business. Instead of applying through the BRO, you will use the Non-Resident Business Number and Account Registration (NRBNAR) service.

4. Await confirmation from the CRA
The CRA will send you a reference number immediately after you apply. Refer to this number if you need to contact them for status updates on your application.

The CRA typically processes applications within a few weeks. In the meantime, they may contact you to ask for additional details about your business and employees.

Once the CRA processes your application, they send you a registration package with resources and any necessary forms. The package should contain your first remittance form. If it arrives too late, you must find an alternative method as you’re still responsible for making the payment.

Provincial payroll tax registration requirements

You don’t need a separate payroll account for every province and territory where you hire workers. However, many jurisdictions require you to register for local programs such as Employer Health Tax in British Columbia and the HE levy in Manitoba. This enables you to set up contributions for your employees and maintain compliance with provincial laws.

Remitting payroll taxes to the CRA

The CRA sets you a remitter type based on your average monthly withholdings (AMW). If you’re unsure of your type, you can check your account.

Each remitter type must follow different requirements:

Calculating and reporting on taxable benefits

Withholding isn’t limited to wages. Canadian employers are also required to calculate taxes and remit payments for many types of employee benefits.

The CRA gives detailed instructions on how to do this:

1. Determine whether the benefit is taxable: Anything you provide to the employee is considered a taxable benefit if it has economic value and they’re the primary beneficiary. That includes any goods and services you arrange or free use of company property
2. Calculate the value of the benefit: The CRA expects you to find the fair market value of the benefit and include any HST or GST taxes paid
3. Calculate and withhold payroll deductions: You must apply a different deduction formula based on whether you paid the benefit in cash, near-cash, or non-cash. ‘Near-cash’ is anything that functions like money such as stocks or security
4. Report the taxable benefit: When you file payroll reports at the end of the year, mention taxable benefits in the forms you send to both employees and the CRA

How to submit Canadian payroll tax payments

The CRA has approved a variety of payment methods for remittances:

• Online banking: Add the CRA as the recipient on your online banking and make the transfer directly from your business account. This method takes three business days to appear on your CRA account
• CRA online service: Pay the amount you owe via the CRA payment portal. You can choose between a one-time payment or a series of scheduled payments
• Teller service: Arrange the payment at the counter of your bank or credit union. Only Canadian financial institutions are eligible
• Mail: Send a cheque or series of postdated cheques to the CRA along with your remittance voucher.
• Third-party service provider: Let a payroll provider like Deel send the payment and remittance details on your behalf

However, there is an exception: Accelerated remitters that have met threshold two can only pay through online services or their Canadian bank.

Reporting and year-end payroll tax obligations

At the end of the year, Canadian employers must issue payroll summaries to their employees and the CRA.

Issue all the workers on your payroll with a T4 slip, otherwise known as a Statement of Remuneration. This form identifies all the earnings, benefits, and contributions they’ve made through your business. You must issue these slips to employees by the last day of February of the following year.

Next, send a T4 summary to the CRA. As the name suggests, this form summarizes all the information you reported on your T4 slips to your employees. The deadline is also the last day of February of the following year.

You must report all amounts in Canadian dollars even if you paid employees in another currency.

Reporting in Quebec

As Quebec has a separate tax system, you must file different reports for employees living there. You send employees the Relevé 1 (RL-1) slip and RevenuQuebec the RL-1 Summary.

The deadline is the same as payroll reports for the rest of Canada—the last day of February of the following year.

Note that all the forms are issued in French. While there are some guides and resources in English, there are no translated versions.

How to stay compliant with Canadian payroll tax laws

Non-compliance with Canadian payroll laws can lead to steep penalties. For example, the CRA charges you 5% of the balance owing plus an extra 1% in interest for every month you fail to pay.

To avoid these complications, follow these good best practices for managing payroll:

Learn the proper procedures to correct errors

Research what to do when you make a mistake with your Canadian payroll taxes. You may be able to reverse the error with no repercussions or at least mitigate some of the damage done.

The CRA provides detailed instructions on how to correct different payroll deduction errors. For example, you might receive a notice saying you’ve missed some CPP contributions. You must pay the missing amount upfront but you have 12 months to recover your employees’ share from their wages.

Manage payroll records properly

Payroll management isn’t over once you’ve filed the end-of-year reports. The CRA requires you to store payroll records for six years past the end of the year they relate to.

Not only that, but you must also store records at your business or residence in Canada unless the CRA gives you written permission.

Are you only looking to hire within Canada? If you don’t already have an entity in the country, consider using an Employer of Record (EOR) like Deel instead of directly employing workers. You don’t have to establish a legal entity or set up an office space—the service provider stores the payroll records on your behalf.

Automate payroll tax calculations

Use payroll software to calculate Canadian payroll taxes rather than applying the formulas yourself. This saves you time and resources and reduces the risk of costly errors.

Besides calculating taxes, advanced software like Deel Global Payroll can schedule payments, generate reports, and distribute payslips to employees.

If you manage teams abroad, Deel can also provide a centralized platform to handle those accounts. You can pay your Canadian workers from the same place as the rest of your workforce, keeping payroll processes consistent and consolidated across your organization.

Track regulatory changes

Canadian tax rates and rules change every calendar year. Regularly check the CRA and local websites for news bulletins to look for regulatory updates so your company has time to adjust its payroll processes.

However, keeping track of these changes is challenging when you have a distributed team or you’re used to following a different tax schedule. You can easily overlook a vital update, causing you to use the wrong tax rate or miss an important deadline.

Partnering with Deel gives you access to our continuous compliance hub. You receive up-to-date notifications about any new and changing laws in the countries where you operate before they happen. We write these bulletins in plain, accessible language and explain what they mean for your business.

Stay on top of employee information

Keep track of your Canadian workers to ensure their details are accurate. They might not realize they need to update you about a simple change of address, which can have massive implications for your payroll management—and their payments.

For example, if a remote employee moves from Quebec to another province, contributions may be split between CPP and QPP.

Deel makes it easier for employees to update details. Instead of emailing the HR department, they can log in and make the edits directly to their account. You can receive a notification and approve the changes as soon as the employee confirms.

Seamless payroll management in Canada with Deel

Canada’s tax regulations vary by province, making compliance challenging. Even after weeks of research and preparation, your business may struggle to stay on top of calculations, deductions, and benefit contributions.

Many companies turn to payroll providers like Deel to navigate the challenges. Deel offers two possible routes depending on your needs and goals:

Deel EOR hires workers on your behalf so you can skip the entire entity set-up process and leave the HR and payroll to our local team. As we assume all responsibility for compliance, you’re free to focus on expanding your team and putting their expertise to good use.

Deel Global Payroll automates all payments, withholdings, and contributions through our fully managed solution. If you have teams in other countries, you can manage them within the same platform. This keeps payroll processes on track and eliminates any inconsistencies between your Canadian employees and their colleagues abroad.

Looking for support as you take the next step in Canada? Book a 30-minute demo with the Deel team to see whether an EOR or global payroll is the right fit.