What Calgary Business Owners Need to Know About Source Deductions

The moment you hire your first employee in Calgary, you take on a critical legal obligation: deducting income tax, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premiums from their pay and remitting those amounts to CRA. Getting source deductions wrong is one of the most penalised mistakes a business owner can make.

What Are Source Deductions?

Source deductions are amounts you withhold from your employees' paycheques on behalf of CRA. They include federal and provincial income tax (based on the employee's TD1 form and pay level), CPP contributions (both the employee portion and a matching employer portion), and EI premiums (the employee portion plus the employer portion, which is 1.4 times the employee amount).

How to Calculate Them

CRA provides online payroll calculators and payroll deduction tables that tell you exactly how much to withhold based on an employee's pay period, province, and TD1 claim codes. Most payroll software (including QuickBooks Online Payroll) automates these calculations. Manual calculation is possible but risky due to the complexity of the tax tables.

When to Remit

Your remittance frequency depends on your average monthly withholding amount. New employers with small payrolls typically remit monthly, due by the 15th of the following month. Larger employers may need to remit semi-monthly or even within three business days of each pay run. CRA will notify you of your remittance schedule.

Penalties for Errors

CRA takes payroll compliance very seriously. Penalties for late remittance range from 3% (1-3 days late) to 10% (more than 7 days late), and 20% for repeat offenders in the same year. Unlike most tax penalties, payroll penalties can be assessed against directors personally — meaning your personal assets are at risk.

Year-End Obligations

By February 28 each year, you must file T4 information returns and provide T4 slips to all employees. When an employee leaves, you must issue a Record of Employment (ROE) within five calendar days.

Castle Handles Payroll Right

Castle Bookkeeping's payroll service handles all source deduction calculations, CRA remittances, T4 preparation, and ROE filing. We ensure you stay compliant and avoid costly penalties. Contact us for a free consultation.