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| 1 | --- |
| 2 | name: canada-payroll |
| 3 | description: > |
| 4 | Use this skill whenever asked about Canadian payroll, source deductions, |
| 5 | CPP contributions, EI premiums, or employer obligations in Canada. |
| 6 | Trigger on phrases like "source deductions", "CPP", "Canada Pension Plan", |
| 7 | "CPP2", "EI", "employment insurance", "T4", "TD1", "payroll deductions", |
| 8 | "CRA payroll", "remittance", "ROE", "record of employment", "statutory holiday pay", |
| 9 | "vacation pay Canada", "minimum wage Canada", "provincial tax", "payroll Canada", |
| 10 | "PD7A", "remitter type", or any question about running payroll in Canada. |
| 11 | This skill covers federal rules; Quebec (QPP/QPIP) differences are noted but |
| 12 | not fully detailed. ALWAYS read this skill before processing any Canadian payroll work. |
| 13 | version: 1.0 |
| 14 | jurisdiction: CA |
| 15 | category: payroll |
| 16 | depends_on: |
| 17 | - payroll-workflow-base |
| 18 | --- |
| 19 | |
| 20 | # Canada -- Payroll Skill v1.0 |
| 21 | |
| 22 | --- |
| 23 | |
| 24 | ## Section 1 -- Quick Reference |
| 25 | |
| 26 | | Field | Value | |
| 27 | |---|---| |
| 28 | | Country | Canada | |
| 29 | | Currency | CAD ($) only | |
| 30 | | Tax year | Calendar year (1 January -- 31 December) | |
| 31 | | Primary legislation | Income Tax Act (federal); Canada Pension Plan Act; Employment Insurance Act; Canada Labour Code (federal employees) | |
| 32 | | Tax authority | Canada Revenue Agency (CRA) | |
| 33 | | Reporting system | T4/T4A information returns; PD7A remittance voucher | |
| 34 | | Pay frequency | Biweekly (most common), semi-monthly, monthly, weekly | |
| 35 | | Employer registration | Business Number (BN) + payroll program account (RP) via CRA | |
| 36 | | Provincial variation | Each province/territory has its own income tax brackets, ESA, and minimum wage | |
| 37 | | Validated by | Pending -- requires sign-off by a Canadian CPA or payroll compliance practitioner (PCP) | |
| 38 | | Skill version | 1.0 | |
| 39 | |
| 40 | --- |
| 41 | |
| 42 | ## Section 2 -- Income Tax Withholding (Source Deductions) |
| 43 | |
| 44 | Employers withhold both federal and provincial/territorial income tax from each pay. CRA publishes payroll deduction tables (T4032) and formulas (T4127) annually. |
| 45 | |
| 46 | ### Federal Tax Brackets (2026) |
| 47 | |
| 48 | | Taxable Income (CAD) | Rate | |
| 49 | |---|---| |
| 50 | | 0 -- 58,523 | 14% | |
| 51 | | 58,523 -- 117,045 | 20.5% | |
| 52 | | 117,045 -- 181,440 | 26% | |
| 53 | | 181,440 -- 258,482 | 29% | |
| 54 | | 258,482+ | 33% | |
| 55 | |
| 56 | The lowest bracket rate was reduced from 15% to 14% effective for the 2026 tax year (enacted via 2025 tax reform). |
| 57 | |
| 58 | ### Federal Basic Personal Amount (BPA) -- 2026 |
| 59 | |
| 60 | | Income Level | BPA (CAD) | |
| 61 | |---|---| |
| 62 | | Up to $181,440 | $16,452 | |
| 63 | | $181,440 -- $258,482 | Claws back to $14,829 | |
| 64 | | Above $258,482 | $14,829 | |
| 65 | |
| 66 | ### Provincial/Territorial Tax |
| 67 | |
| 68 | Each province has its own tax brackets applied on top of federal tax. The employer determines the applicable province based on the employee's **province of employment** (where they physically report to work). Employees complete a federal TD1 and a provincial TD1 form. |
| 69 | |
| 70 | ### Key Provincial Top Marginal Rates (Combined Federal + Provincial, 2026) |
| 71 | |
| 72 | | Province | Top Combined Rate (approx.) | |
| 73 | |---|---| |
| 74 | | Ontario | ~53.5% | |
| 75 | | British Columbia | ~53.5% | |
| 76 | | Alberta | ~48.0% | |
| 77 | | Quebec | ~53.3% | |
| 78 | | Manitoba | ~50.4% | |
| 79 | | Saskatchewan | ~47.5% | |
| 80 | |
| 81 | --- |
| 82 | |
| 83 | ## Section 3 -- Social Security: Employee Deductions |
| 84 | |
| 85 | ### Canada Pension Plan (CPP) -- 2026 |
| 86 | |
| 87 | | Component | Rate (Employee) | Ceiling | Maximum Contribution | |
| 88 | |---|---|---|---| |
| 89 | | CPP base + first additional | 5.95% | YMPE $74,600 (less $3,500 basic exemption) | $4,230.45 | |
| 90 | | CPP2 (second additional) | 4.00% | Earnings between YMPE $74,600 and YAMPE $85,000 | $416.00 | |
| 91 | |
| 92 | - Basic exemption: $3,500/year (pro-rated per pay period) |
| 93 | - CPP applies to employees aged 18--69 (mandatory 18--65; elective 65--70) |
| 94 | - CPP2 is a second tier introduced in 2024 on earnings between the first and second ceilings |
| 95 | |
| 96 | ### Employment Insurance (EI) -- 2026 |
| 97 | |
| 98 | | Item | Rate | Maximum Insurable Earnings | Maximum Annual Premium | |
| 99 | |---|---|---|---| |
| 100 | | Employee (Canada except Quebec) | 1.63% | $68,900 | $1,123.07 | |
| 101 | | Employee (Quebec -- reduced for QPIP) | 1.31% | $68,900 | $902.59 | |
| 102 | |
| 103 | ### Quebec Differences |
| 104 | |
| 105 | Quebec employees pay QPP instead of CPP (rate 6.40% for 2026) and QPIP (Quebec Parental Insurance Plan) at 0.494%. These are deducted separately. |
| 106 | |
| 107 | --- |
| 108 | |
| 109 | ## Section 4 -- Social Security: Employer Contributions |
| 110 | |
| 111 | ### CPP Employer Contributions -- 2026 |
| 112 | |
| 113 | | Component | Rate | Maximum | |
| 114 | |---|---|---| |
| 115 | | CPP base + first additional | 5.95% (matches employee) | $4,230.45 | |
| 116 | | CPP2 | 4.00% (matches employee) | $416.00 | |
| 117 | |
| 118 | Employer CPP contributions mirror the employee amount exactly (1:1 match). |
| 119 | |
| 120 | ### EI Employer Contributions -- 2026 |
| 121 | |
| 122 | | Item | Rate | Maximum | |
| 123 | |---|---|---| |
| 124 | | Employer (Canada except Quebec) | 2.282% (1.4× employee rate) | $1,572.30 | |
| 125 | | Employer (Quebec) | 1.834% (1.4× employee rate) | $1,264.03 | |
| 126 | |
| 127 | The employer pays 1.4 times the employee EI premium. Employers may apply for an EI premium reduction if they have a qualifying short-term disability plan. |
| 128 | |
| 129 | ### Workers' Compensation |
| 130 | |
| 131 | Provincial/territorial requirement. Premiums vary by industry classification and province. Typically $0.50--$3.00 per $100 of insurable earnings for office workers; higher for construction/manufacturing. |
| 132 | |
| 133 | ### Employer Health Tax (Select Provinces) |
| 134 | |
| 135 | | Province | Threshold | Rate | |
| 136 | |---|---|---| |
| 137 | | Ontario (EHT) | $1,000,000 | 0.98%--1.95% | |
| 138 | | British Columbia (EHT) | $1,000,000 | 1.95%--2.925% | |
| 139 | | Manitoba (HE levy) | $2,250,000 | 2.15%--4.3% | |
| 140 | | Quebec (HSF) | All payroll | 1.65%--4.26% | |
| 141 | |
| 142 | --- |
| 143 | |
| 144 | ## Section 5 -- Minimum Wage and Overtime |
| 145 | |
| 146 | ### Federal Minimum Wage |
| 147 | |
| 148 | $17.75/hour (as of April 2025, indexed annually to CPI). Applies to federally regulated industries only (banking, telecom, interprovincial transport). |
| 149 | |
| 150 | ### Select Provincial Minimum Wages (2026) |
| 151 | |
| 152 | | Province | Rate (CAD/hour) | |
| 153 | |---|---| |
| 154 | | Ontario | $17.20 | |
| 155 | | British Columbia | $17.85 | |
| 156 | | Alberta | $15.00 | |
| 157 | | Quebec | $16.10 | |
| 158 | | Manitoba | $15.80 | |
| 159 | | Saskatchewan | $15.00 | |
| 160 | |
| 161 | Rates are approximate and subject to annual adjustments. |
| 162 | |
| 163 | ### Overtime |
| 164 | |
| 165 | | Jurisdiction | Threshold | Rate | |
| 166 | |---|---|---| |
| 167 | | Federal | 8 hrs/day or 40 hrs/week | 1.5× regular rate | |
| 168 | | Ontario | 44 hrs/week | 1.5× regular rate | |
| 169 | | British Columbia | > 8 hrs/day or > 40 hrs/week | 1.5×; > 12 hrs/day = 2× | |
| 170 | | Alberta | > 8 hrs/day or > 44 hrs/week | 1.5× regular rate | |
| 171 | | Quebec | > 40 hrs/week | 1.5× regular rate | |
| 172 | |
| 173 | --- |
| 174 | |
| 175 | ## Section 6 -- Mandatory Benefits |
| 176 | |
| 177 | ### Vacation Pay |
| 178 | |
| 179 | | Jurisdiction | After 1 Year | After 5+ Years | |
| 180 | |---|---|---| |
| 181 | | Federal | 4% (2 weeks) | 6% (3 weeks) | |
| 182 | | Ontario | 4% (2 weeks) | 6% (3 weeks after 5 years) | |
| 183 | | British Columbia | 4% (2 weeks) | 6% (3 weeks after 5 years) | |
| 184 | | Alberta | 4% (2 weeks) | 6% (3 weeks after 5 years) | |
| 185 | | Quebec | 4% (2 weeks) initially; 6% after 3 years | 6% (3 weeks) | |
| 186 | | Saskatchewan | 5.77% (3 weeks) | 7.69% (4 weeks after 10 years) | |
| 187 | |
| 188 | ### Statutory / Public Holidays |
| 189 | |
| 190 | 9 federal statutory holidays. Provincial holidays vary (6--10 per province). Employees are entitled to the statutory holiday with pay or premium pay (typically 1.5× or time off in lieu) if they work on the holiday. |
| 191 | |
| 192 | ### Sick Leave |
| 193 | |
| 194 | | Jurisdiction | Paid Days | Unpaid Days | |
| 195 | |---|---|---| |
| 196 | | Federal | 10 paid (after 30 days of service) | -- | |
| 197 | | Ontario | 3 paid | -- | |
| 198 | | British Columbia | 5 paid | 3 unpaid | |
| 199 | | Quebec | 2 paid (after 3 months) | 24 unpaid | |
| 200 | | Alberta | 0 paid | 16 unpaid | |
| 201 | |
| 202 | ### Maternity / Parental Leave (EI Benefits) |
| 203 | |
| 204 | | Benefit | Duration | EI Rate | |
| 205 | |---|---|---| |
| 206 | | Maternity (birth parent only) | 15 weeks | 55% of insurable earnings (max ~$695/week for 2026) | |
| 207 | | Standard parental | 35 weeks | 55% of insurable earnings | |
| 208 | | Extended parental | 61 weeks | 33% of insurable earnings | |
| 209 | |
| 210 | Employers are not required to top up EI benefits, though many do contractually. The one-week EI waiting period is currently waived (suspended). |
| 211 | |
| 212 | ### Group Benefits |
| 213 | |
| 214 | Not legally mandated, but most Canadian employers provide extended health, dental, life insurance, and short/long-term disability as part of competitive compensation. |
| 215 | |
| 216 | --- |
| 217 | |
| 218 | ## Section 7 -- Payslip Requirements |
| 219 | |
| 220 | The Canada Labour Code (federal) and provincial Employment Standards Acts require employers to provide a pay statement each pay period. |
| 221 | |
| 222 | ### Mandatory Payslip Contents |
| 223 | |
| 224 | - Pay period dates |
| 225 | - Gross earnings |
| 226 | - All deductions itemised (CPP, EI, federal tax, provincial tax, other) |
| 227 | - Net pay |
| 228 | - Hours worked (if hourly) |
| 229 | - Rate of pay |
| 230 | - Overtime hours and pay (if applicable) |
| 231 | - Vacation pay (if applicable) |
| 232 | |
| 233 | ### Additional Requirements by Province |
| 234 | |
| 235 | Ontario requires the employer's name and address, the employee's name, and the pay period. Quebec requires similar plus contribution details. Most provinces align with the above minimum. |
| 236 | |
| 237 | --- |
| 238 | |
| 239 | ## Section 8 -- Filing Obligations |
| 240 | |
| 241 | ### Remittance of Source Deductions |
| 242 | |
| 243 | | Remitter Type | Threshold (Avg Monthly Withholding) | Due Date | |
| 244 | |---|---|---| |
| 245 | | Quarterly | < $1,000 (new, perfect compliance) | 15th of month after quarter end | |
| 246 | | Regular | < $25,000 | 15th of following month | |
| 247 | | Threshold 1 accelerated | $25,000 -- $99,999.99 | Twice monthly (15th and month-end) | |
| 248 | | Threshold 2 accelerated | ≥ $100,000 | Up to 4 times per month (within 3 business days of pay date) | |
| 249 | |
| 250 | ### Year-End Filing (T4) |
| 251 | |
| 252 | | Task | Deadline | |
| 253 | |---|---| |
| 254 | | T4 slips to employees | Last day of February | |
| 255 | | T4 Summary to CRA | Last day of February | |
| 256 | | T4A slips (contract/other income) | Last day of February | |
| 257 | | Quebec: RL-1 slips to employees and Revenu Québec | Last day of February | |
| 258 | |
| 259 | ### Record of Employment (ROE) |
| 260 | |
| 261 | Must be issued within 5 calendar days of an interruption in earnings (layoff, leave, termination, etc.). Filed electronically via ROE Web. |
| 262 | |
| 263 | ### Penalties |
| 264 | |
| 265 | | Violation | Penalty | |
| 266 | |---|---| |
| 267 | | Late remittance | 3% (1--3 days late) to 10% (7+ days late) + arrears interest | |
| 268 | | Failure to deduct | Employer liable for undeducted amounts + 10% penalty | |
| 269 | | Late T4 filing | $100/day per employee (min $100, max $7,500) | |
| 270 | | Failure to issue ROE | Up to $2,000 fine and/or 6 months imprisonment | |
| 271 | |
| 272 | --- |
| 273 | |
| 274 | ## Section 9 -- Common Payroll Patterns |
| 275 | |
| 276 | ### Pattern 1 -- Biweekly Employee (Ontario) |
| 277 | |
| 278 | Annual salary $75,000. Paid biweekly (26 pay periods). |
| 279 | |
| 280 | 1. Gross per period: $75,000 ÷ 26 = $2,884.62 |
| 281 | 2. CPP: ($2,884.62 - $134.62 exemption) × 5.95% = $163.60 |
| 282 | 3. CPP2: if annualised earnings exceed $74,600, additional 4% applies on the excess (calculated cumulatively) |
| 283 | 4. EI: $2,884.62 × 1.63% = $47.02 |
| 284 | 5. Federal tax: per T4032 table for biweekly pay |
| 285 | 6. Ontario provincial tax: per T4032-ON table |
| 286 | 7. Employer CPP: $163.60 (matches employee) |
| 287 | 8. Employer EI: $47.02 × 1.4 = $65.83 |
| 288 | |
| 289 | ### Pattern 2 -- Employee Reaching CPP Maximum |
| 290 | |
| 291 | Employee paid $80,000 semi-monthly ($3,333.33/period). By period 11, cumulative pensionable earnings exceed YMPE $74,600. CPP deductions stop at $4,230.45. CPP2 continues until YAMPE $85,000 is reached (max $416.00). Payroll software tracks cumulative contributions and stops deducting when maximums are reached. |
| 292 | |
| 293 | ### Pattern 3 -- Vacation Pay Payout |
| 294 | |
| 295 | Employee earning $52,000/year with 4% vacation pay. Vacation pay accrues: $52,000 × 4% = $2,080/year. Can be paid on each cheque (added to gross, subject to all deductions) or accrued and paid when vacation is taken. |
| 296 | |
| 297 | ### Pattern 4 -- Termination with ROE |
| 298 | |
| 299 | Employee terminated without cause. Final pay includes: |
| 300 | - Outstanding regular wages through last day |
| 301 | - Accrued vacation pay (mandatory payout) |
| 302 | - Termination pay (if applicable under ESA -- typically 1 week per year of service) |
| 303 | - Severance (Ontario: 1 week per year if 5+ years and employer payroll ≥ $2.5M) |
| 304 | |
| 305 | Issue ROE within 5 days via ROE Web. Code M (dismissal) or other applicable code. |
| 306 | |
| 307 | --- |
| 308 | |
| 309 | ## Section 10 -- Interaction with Other Skills |
| 310 | |
| 311 | | Skill | Interaction | |
| 312 | |---|---| |
| 313 | | payroll-workflow-base | Provides generic payroll processing steps; this skill adds Canadian-specific rules | |
| 314 | | canada-bookkeeping | Payroll journals: salaries + ER CPP/EI + ER EHT/WCB to P&L; net pay + source deductions payable to BS | |
| 315 | | canada-corporate-tax | Employer CPP/EI and provincial health taxes are deductible business expenses | |
| 316 | | canada-gst-hst | No GST/HST on wages; but taxable benefits may trigger GST/HST | |
| 317 | |
| 318 | --- |
| 319 | |
| 320 | ## Disclaimer |
| 321 | |
| 322 | This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional (such as a CPA, EA, tax attorney, or equivalent licensed practitioner in your jurisdiction) before filing or acting upon. |
| 323 | |
| 324 | The most up-to-date, verified version of this skill is maintained at [openaccountants.com](https://openaccountants.com). Log in to access the latest version, request a professional review from a licensed accountant, and track updates as tax law changes. |
| 325 |
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About
Use this skill whenever asked about Canadian payroll, source deductions, CPP contributions, EI premiums, or employer obligations in Canada. Trigger on phrases like "source deductions", "CPP", "Canada Pension Plan", "CPP2", "EI", "employment insurance", "T4", "TD1", "payroll deductions", "CRA payroll", "remittance", "ROE", "record of employment", "statutory holiday pay", "vacation pay Canada", "minimum wage Canada", "provincial tax", "payroll Canada", "PD7A", "remitter type", or any question about running payroll in Canada. This skill covers federal rules; Quebec (QPP/QPIP) differences are noted but not fully detailed. ALWAYS read this skill before processing any Canadian payroll work.
CAty-2025
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