Canada payroll and tax overview.

Canada is the largest country in North America with borders stretching from the Atlantic Ocean in the east to the Pacific Ocean in the west. As one of the world’s wealthiest nations, and its 11th largest economy, Canada’s financial landscape is diverse: natural resources, including oil and timber, play a significant part in the country’s economic profile but the manufacturing, automotive, and aerospace industries are also important. Canada is a hub for technological innovation: it is a net exporter of energy and hosts some of the world’s leading software entertainment production centres. Canada’s GDP reached an estimated $1.741 trillion in 2019, with a growth rate of 1.7%. A developed parliamentary democracy, Canada is closely economically integrated with the United States with relatively open borders allowing tariff-free trade between the two countries. Canada is a member of NATO, the UN, the G7, the G20, and the United States-Mexico-Canada Agreement. In 2019, the World Bank ranked Canada 23 on its Ease of Doing Business Survey.

Why Invest in Canada?

Canada is experiencing a period of economic growth. The diversity of its industrial landscape is reflected in the opportunities it offers investors:

• A range of government grants and tax credits, such as the Industrial Research Assistance Program, are available to business start-ups in Canada - they offer entrepreneurs access to financing, advice and support. Tax incentives also exist for start-ups - especially in research fields where relief of up to 50% may be available.
• The relatively low value of the Canadian dollar offers additional value on top of any investment schemes businesses may be able to take advantage of. Target markets like Toronto, Montreal and Vancouver offer low cost start-up opportunities.
• Canada offers its businesses a wealth of talent and innovation, with an education system ranked 7th in the world and a tertiary education attainment rate ranked 2nd in the world. The Bloomberg Innovation Index places Canada as the 12th most innovative country in the world, with the 5th largest high-technology sector.
• The oil and gas industry continues to be a valuable part of Canada’s economic prosperity. Holding as much oil as the Middle East, Alberta’s oil sands offer opportunities for companies to extract and deliver oil to Canada and the rest of the world. While other global markets tend to be dominated by large companies, the Canadian energy sector is competitively diversified.
• Canada’s low cost access to US markets means a huge consumer base is available to its businesses. With a global reach - and a recently-agreed trade deal with the European Union - Canada promises its businesses connections to lucrative consumer markets around the world.

The Canadian Government welcomes inward investment in Canada with attractive incentives being available for foreign investors. Canada’s political stability and highly skilled workforce provide many investment opportunities for companies considering expanding their operations in the country. Both Forbes and Bloomberg rated Canada as the best place to do business in the G20 while, from 2006-2015, Canada led the G7 in terms of economic growth. Canada also has the lowest tax rates, and the lowest cost of doing business (for R&D based organisations) of the G7 countries. With the Comprehensive Economic Trade Agreement coming into effect in 2016, Canada now enjoys access to the diverse markets of both Europe and North America (through NAFTA).

Registrations and Establishing an Entity in Canada

Any company wishing to operate in Canada must decide whether operations will occur within a single province or throughout Canada. If business will be conducted all over the country, the corporation must register both federally and within the individual provinces that the business will be conducted in.

Please note, it is recommended that a lawyer or an accountant evaluate all considerations.

All businesses operating in Canada are required to register with the Canadian Revenue Agency to receive a business number. This number will allow the business to pay or claim Sales Tax, Income Taxes and Payroll Taxes.

In addition to registering a business number, some entities may be required to register with provincial Workers Compensation boards, provincial heath tax boards or other applicable provincial agencies.

Please refer the provincial government requirements for specific details.

Business Banking in Canada

It is not mandatory to make payments to both employees and the authorities from a Canadian bank account. Core banking hours for the public are from 9.00 am to 5.00 pm.

Working Days and Working Hours in Canada

The standard business week in Canada is Monday to Friday, generally working 40 hours per week (8 hours per day).

Statutory Holidays in Canada

There are multiple statutory holiday schedules within Canada. The appropriate schedule is determined by the employment legislation which governs your employees.

Basic Facts about Canada

Canada stretches from the Atlantic Ocean on its eastern coast, to the shores of the Pacific Ocean in the west, and shares the world’s longest land border with the United States to the south. Second only to Russia in terms of landmass, Canada is vast - covering almost 4 million square miles - and is made up of ten provinces and three territories. Despite its size, Canada is relatively sparsely populated - with dense concentrations of inhabitants occupying its major urban centres like Montreal, Ottawa, Toronto, Edmonton and Vancouver. Since achieving full autonomy from Britain in 1982, Canada has become one of the world’s leading economic powers, with a transparent democratic and parliamentary government system and impressive growth. Canada’s climate varies dramatically: the Rocky Mountains and western provinces experience extremely harsh winters, while its eastern and western-most regions are wetter and milder.

General Information

Full Name: Canada

Population: 37.59 million (World Bank, 2019)

Capital: Ottawa

Largest City: Toronto

Major Languages: English, French (both official)

Major Religion: Christianity

Monetary Unit: 1 Canadian Dollar = 100 Cents

Main Exports: Machinery and Equipment, Automotive Products, Metals and Plastics, Forestry Products, Agricultural and Fishing Products, Energy Products

GNI Per Capita: US $51,357.80 (World Bank, 2019)

Internet Domain: .ca

International Dialling Code: +1

The tax year runs from 1 January to 31 December.

There is no requirement for a third party to be licensed in order to make any tax filings on the behalf of a client. Although a license is not required, a Power of Attorney or Government Authorization form for the business is required.

The penalty for failing to distribute T4 slips to a recipient is $25.00 per day for each failure with a minimum penalty of $100.00 and a maximum penalty of $2,500.00.

Canada has multiple remittance frequencies for a variety of Federal and Provincial statutory tax deductions that will be outlined in this document. Remittance frequencies and rates are generally provided by the Ministries based on company’s gross payroll earnings.

Income Tax in Canada

Canadian employers are responsible for calculating, withholding, reporting, and remitting all employee and employer tax deductions based on their employees’ gross payroll to all applicable government parties.

Federal Remittance Types in Canada

Federal Tax: based on employees’ taxable gross calculated on the employees’ earnings tax bracket

Provincial Tax (excluding Quebec): based on employees’ taxable gross calculated on the employees’ earnings tax bracket

Quebec Remittance Types

Provincial Tax: based on employees’ taxable gross calculated on the employees’ earnings tax bracket

Canadian Pension Plan & Quebec Pension Plan

Remittances to the Canadian Pension Plan (CPP) are remitted based on the remittance frequency.

Employers must also contribute the same amount of CPP or QPP (if in Quebec) that you deduct from your employee’s remuneration. This is contributed until the salary or wages paid to the employee for the year reach the maximum pensionable salary or wages for the year.

New Employees in Canada

Employees must be eligible to work in Canada and are required to have a valid Social Insurance Number. Employees must be registered on the payroll upon receipt of their Social Insurance Number (SIN).

The information required for setting up a new employee is as follows:

• Name
• Date of Birth
• Citizenship/Legal Status
• Residential Address
• Telephone Number
• SIN Number
• Bank Account Details (Void Cheque/Direct Deposit slip)
• Employee’s employment contract information
• Collective Agreement information (If applicable)
• Employee Tax Details (TD1/TP-1015.3-V forms)
• Benefit/Pension Enrolment or Waiver forms (If applicable)
• Electronic Pay Statement, T4/RL1 Authorization form
• Work Location/Province of Employment

Employers are required to ensure new employees are aware that they have to complete a TD1.

Leavers in Canada

Employees whose employment is terminated must be paid within a certain number of days from their last day worked, particularly if their employment was terminated by the employer. Final payment date will be driven by provincial legislation. Most companies simply pay at the next pay date.

For terminated employees the requirements are to detail the reason for termination, the effective date and provide clarification and payment if there are any outstanding items such as bonuses or days due for vacation.

The employer must issue a Record of Employment (ROE) within provincially driven calendar days after the end of the pay period that the interruption of earnings occurred. Failure to do so could result in a fine of up to $2,000.00 and / or imprisonment of up to six months.

It is legally acceptable in Canada to provide employees with online payslips providing acceptance received from the employee. You are required to provide the payslips in the employee’s language of choice (English or French). Payroll and other employment records must be kept for at least 36 months.