You may be paying your employee the wrong way!
For Example (Advances):
It is assumed that advances are deducted from net pay. Hence, some employees do not report advances when reporting payroll but instead deduct or recoup the advance outside of the pay stub (payroll reporting).
However, Canadian Payroll rules require that CPP, EI, and Income Tax is deducted from advances.
Therefore, when reporting payroll either:
- Report the Gross Payroll Advance so that we can calculate the net advance.
- Report the Net Payroll Advance to calculate backward (additional fee applies) to arrive at the required Gross Payroll Advance.
There are also other forms of special payments.
If you have questions, please contact our office by either(in order of preference):
- Click here to Text our Office
- Click here to E-Mail our Office
- Click here to Phone our Office 1-877-920-2Pay (2729)
Here is a breakdown:
| Special payments | CPP contributions [Note 1] | EI premiums [Note 1] | Tax deductions |
|---|---|---|---|
| Advances | Yes | Yes | Yes |
| Benefits under the Employment Insurance Act | No | No | Yes |
| Bonuses and retroactive pay increases or irregular amounts | Yes | Yes | Yes |
| Casual employment if it is for a purpose other than your usual trade or business (even if there is a contract of employment) | No | No | No |
| Caregiving benefits – amounts paid to cover the waiting period or to increase the benefit | Yes | Yes/No (Note 2) | Yes |
| Corporate employee who controls more than 40% of the corporation's voting shares receiving a salary, wages or other remuneration | Yes | No | Yes |
| Directors' fees paid to residents of Canada or non-residents – Fee-only | Yes (Note 3) | No | Yes (Note 4) |
| Directors' fees paid to residents of Canada or non-residents – Fee in addition to salary | Yes/No (Note 5) | Yes/No (Note 5) | Yes |
| Employees profit-sharing plan (EPSP) | No | No | No |
| Employment in Canada by a foreign government or an international organization | Yes/No (Note 6) | Yes/No (Note 7) | Yes (Note 8) |
| Employment in Canada of a non-resident person if the unemployment insurance laws of any foreign country require someone to pay premiums for that employment | Yes/No (Note 9) | No | Yes (Note 8) |
| Employment in Canada under an exchange program if the employer paying the remuneration is not resident in Canada | Yes/No (Note 10) | No | Yes (Note 8) |
| Employment of your child or a person that you maintain if no cash remuneration is paid | No | No | No |
| Employment that is an exchange of work or service (even if there is a contract of service) | Yes/No (Note 11) | No | Yes/No (Note 12) |
| Employment under the “Self-employment assistance” or “Job creation partnerships” benefit program established under section 59 of the Employment Insurance Act, or under a similar benefit program that a provincial government or other organization provides and is part of an agreement under section 63 of the Employment Insurance Act. | Yes/No (Note 13) | No | Yes/No (Note 14) |
| Employment when employment insurance premiums have to be paid according to the unemployment insurance laws of any state of the United States, the District of Columbia, Puerto Rico, or the Virgin Islands, or according to the Railroad Unemployment Insurance Act of the United States | Yes/No (Note 10) | No | Yes |
| Entertainment activity, employment in | Yes | Yes | Yes |
| Furlough amounts received when on | Yes | Yes | Yes |
| Honorariums from employment or office | Yes | Yes | Yes |
| Incentive payments | Yes | Yes | Yes |
| Job creation Employment and Social Development Canada approved project, additional amounts that you as an employer pay while participating in a project | Yes/No (Note 15) | No | Yes |
| Lost-time pay from a union amounts received as | Yes | Yes | Yes |
| Maternity benefits – amounts paid to cover the waiting period or to increase the benefit | Yes | Yes/No (Note 2) | Yes |
| Overtime pay, including banked overtime pay | Yes | Yes | Yes |
| Parental care benefits – amounts paid to cover the waiting period or to increase the benefit | Yes | Yes/No (Note 2) | Yes |
| Payments to placement and employment agency workers – Agency that hires employees | Yes | Yes | Yes |
| Payments to placement and employment agency workers – Agency pays the worker | Yes | Yes | No |
| Payments to placement and employment agency workers – Client of the agency pays the worker | Yes | No | Yes |
| Payments to placement and employment agency workers – Agency hires a self‑employed worker | No | No | No |
| Payments under Part 2 of the Veterans’ Well being Act – amounts received on account of an earnings loss benefit, supplementary retirement benefit, or permanent impairment allowance payable to the taxpayer | No | No | Yes |
| Qualifying retroactive lump-sum payments (Note 17) | Yes | Yes | Yes |
| Retirement compensation arrangements (RCA) | No | No | Yes |
| Retiring allowances (also called severance pay) | No | No | Yes (Note 18) |
| Sabbatical, remuneration received while on | Yes | Yes | Yes |
| Salary | Yes | Yes | Yes |
| Salary deferral – non-prescribed plans or arrangements – on amounts earned | Yes | Yes | Yes |
| Salary deferral – prescribed plans or arrangements – on amounts received | Yes/No (Note 16) | Yes/No (Note 16) | Yes |
| Sick leave amounts received while on sick leave, sick leave credits, payments for | Yes | Yes | Yes |
| Spouse or common-law partner, employment of, if you cannot deduct the remuneration paid as an expense under the Income Tax Act | No | Yes/No (Note 19) | Yes |
| Teacher on exchange from a foreign country, employment of | No | Yes/No (Note 20) | Yes/No (Note 21) |
| Tips and gratuities (controlled by employer) | Yes | Yes | Yes (Note 22) |
| Tips and gratuities (direct tips or gratuities – not controlled by the employer) | No | No | No (Note 22) |
| Vacation pay and public holidays, and lump-sum vacation payment | Yes | Yes | Yes |
| Vow of poverty – employment of a member of a religious order who has taken a vow of poverty. This applies whether the remuneration is paid directly to the order or the member pays it to the order. | No | No | Yes/No (Note 23) |
| Wages | Yes | Yes | Yes |
| Wages in lieu of termination notice | Yes | Yes | Yes |
| Wage-loss replacement plans – Paid by the employer | Yes | Yes | Yes |
Wage-loss replacement plans – Paid by third party/trustee and the employer:
| Yes | Yes | Yes |
| Workers' compensation claims – Employee's salary paid before or after a workers' compensation board claim is decided | Yes | Yes | Yes |
| Workers' compensation claims – Advances or loans equal to the workers' compensation benefits awarded | No | No | No |
| Workers' compensation claims – Amount paid in addition to an advance or loan before the claim is accepted | Yes | Yes (Note 24) | Yes |
| Workers' compensation claims – Top-up amounts paid after the claim is accepted | Yes | No | Yes |
| Workers' compensation claims – Top-up amounts paid as sick leave after the claim is accepted | Yes | No | Yes |
| Lending Monies to employees with repayment terms/expected. | No | No | (Note 25) |
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Note 2 Do not deduct EI premiums if the following two conditions are met:
- the total amount of your payment and the EI weekly benefits combined do not exceed the employee's normal weekly gross salary
- your payment does not reduce any other accumulated employment benefits such as banked sick leave, vacation leave credits, or retiring allowance
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Note 3 Do not deduct CPP contributions when the employment is performed totally or partly outside Canada. 🔻 🔻 🔻 🔻
Note 4 Do not deduct income tax if you estimate that the total fee paid in the year is less than the total claim amount on Form TD1.
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Note 5 The issue of whether to deduct CPP, EI or both depends on the status of the resident director's employment. See Directors' fees. 🔻 🔻 🔻 🔻
Note 6 Deduct CPP contributions when the international organization or the foreign government agrees to cover their employees. A list of the international organizations and foreign countries can be found under schedules [V] and [VII] of the Canada Pension Plan Regulations (except for employment listed in schedules [VI] and VIII). 🔻 🔻 🔻 🔻
Note 7 Deduct EI premiums when the foreign government or international organization agrees to cover its Canadian employees under Canada's EI legislation (in this case, the employment is insurable if Employment and Social Development Canada agrees). 🔻 🔻 🔻 🔻
Note 8 For more information on non-resident employees, see Rendering services in Canada. 🔻 🔻 🔻 🔻
Note 9 Deduct CPP contributions unless the worker has a certificate of coverage from the competent authority of their country confirming that the worker is contributing to a pension plan in their country. Do not deduct CPP contributions if the employer is not residing in Canada and does not have an establishment in Canada unless the employer has filed a Form CPT13, Application for an Employer Resident Outside Canada to Cover Employment in Canada Under the Canada Pension.
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Note 10 Do not deduct CPP contributions unless the employer has filed a Form CPT13, Application for an Employer Resident Outside Canada to Cover Employment in Canada Under the Canada Pension. 🔻 🔻 🔻 🔻
Note 11 Deduct CPP contributions unless the employment does not require CPP deductions, as indicated in Chapter 2 of Guide T4001, Employers' Guide – Payroll Deductions and Remittances.
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Note 12 For more information about bartering, please contact our office for valuation and information. Do not deduct income tax unless the taxpayer is an employee and makes a regular habit of providing services for cash.
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Note 13 Do not deduct CPP contributions on benefits paid by Employment and Social Development Canada or a provincial government. Deduct CPP contributions on payments made by an employer unless the individual is working as a self-employed individual or the employment does not require CPP contributions, as indicated in Chapter 2 of Guide T4001, Employers' Guide – Payroll Deductions and Remittances.
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Note 14 Deduct income tax if the payment is considered government financial assistance. But if the payment is considered an inducement to earn business income, do not deduct income tax.
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Note 15 Deduct CPP contributions on payments made by an employer unless the individual is working as a self-employed individual or the employment does not require CPP contributions, as indicated in Chapter 2 of Guide T4001, Employers' Guide – Payroll Deductions and Remittances. 🔻 🔻 🔻 🔻
Note 16 To determine if you have to deduct CPP, EI, or both, see Prescribed salary deferral plans or arrangements. 🔻
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Note 17 Qualifying retroactive lump-sum payments may require CPP or EI deductions in addition to income tax.
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Note 18 Do not deduct income tax on the amount of retiring allowance that is transferred directly to the recipient's RPP or RRSP (up to the amount of the employee's available RRSP deduction limit). See Retiring allowances for details.
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Note 19 Deduct EI premiums if you would have negotiated a similar contract with a person that you deal with at arm's length. 🔻 🔻 🔻 🔻
Note 20 Deduct EI premiums unless the worker is remunerated by an employer residing outside Canada.
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Note 21 You have to deduct income tax on Canadian earnings unless provisions of an income tax convention or treaty say otherwise. 🔻 🔻 🔻 🔻
Note 22 For more information on determining if the tips and gratuities are controlled or direct, see Tips and gratuities.
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Note 23 Deduct income tax unless the employer pays the remuneration directly to the order or the employee provides the employer with a letter of authority approved by a tax services office.
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Note 24 An amount you pay in addition to an advance or loan is not a top-up amount if you pay it while waiting for a decision on a workers' compensation board claim. This amount is considered as employment income.
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Note 25 Monies are paid to an employee where either a repayment arrangement or expectation of repayment is agreed. In that case, the amount advanced is subject to either the agreed rate of interest or the Revenue Canada prescribed rate of interest (whichever is greater). Should the employee only be responsible for the repayment of the principal then the interest component is to be treated as a taxable benefit. This taxable benefit portion is to be reported within each payroll period in which the balance of the principal is outstanding to the employee.
