Goldenseal Payroll Software-- Canada Payroll Withholding Tax Tables

Canadian Payroll Taxes

Canadian users need to handle three federal payroll taxes:

Canada Pension Plan premiums (CPP)
Employment Insurance premiums (EI)
Income Tax withholding

Canada Pension Plan (CPP)

The CPP deduction is a simple percentage on wages. It includes a cutoff amount (in the Tax Item) and a deduction amount (in the Tax Table). There are two tax items-- one for the employee withholding amount, and one for the employer tax.

Employment Insurance (EI)

The EI deduction is a simple percentage on wages. It includes a cutoff amount (in the Tax Item). There are two tax items-- one for the employee withholding amount, and one for the employer tax.

Income Tax Withholding

In order to calculate federal and provincial income taxes correctly, you will need to enter exemptions and tax credit amounts into each employee's account. Here is how to calculate the amount for each field in the Employee account record:

K1 Personal tax credit

Take the amount claimed by the employee as Tax Credits according to the “Total of personal tax credit amounts” on Form TD1. Multiply it by 0.16 and enter it into the Federal Dollar Amount field in each employee account. This amount is K1, the non-refundable personal tax credit (see your tax booklet for more information).

Other credits

Any other federal tax credits must be entered as an annual amount in the Local Dollar Amount field in the employee’s account. This amount is K3 (see your tax booklet for more information). Examples of these are medical expenses or charitable donations authorized by a tax centre or tax services office. If the employee does not claim any other federal tax credits, leave the amount in this field as $0.00.

Tax Factors F, F2 and U1

Enter the sum of all amounts claimed by the employee for tax factors F, F2 and U1 into the State Dollar Amount field in each employee’s account. This is an annual amount-- to convert a weekly amount to annual, add the factors per pay period and multiply by 52 or 53 (the number of pay periods this year).

F: This factor includes deductions at the income source for contributions to a registered retirement savings plan (RRSP), a registered pension plan (RPP), or a retirement compensation
arrangement (RCA).
F2: This factor includes deductions at the income source for alimony or maintenance payments required by a legal document dated on or before May 1, 1997. See your tax booklet for more information regarding this factor.
U1: This factor includes union dues paid to a trade union or an association of public servants, or any dues required by provincial law to an advisory or parity committee or like body.

Tax Factors F1 and HD

Enter the annual sum of amounts claimed by the employee for tax factors F1 and HD into the Other Dollar Amount field in each employee’s account.

F1: This factor includes any annual deductions requested by the employee and authorized by a tax centre or tax services office. Examples include child-care expenses and alimony or maintenance payments not deducted at income source. A tax services office or tax centre must notify you, as the employer, of the amount to be deducted for F1 for any employee who will use this factor.
HD: This factor is the annual amount of deduction for living in a prescribed zone, as indicated on tax Form TD1.

TD1 and TD3 deductions

Any additional tax deductions per pay period the employee requests on Form TD1 or Form TD3 should be entered as an amount per period in the Tax Item “L: Additional Deductions”. The amount should be entered into the amount field to the right of the “Calculation Method” popup in the Tax Item’s window. Additionally, to enable this factor’s deduction you must edit the appropriate Tax Package to include it by placing a check mark next to the “L: Additional Deductions” tax item in the edit tax package window.

LCF Deductions

Any amounts for LCF, the labour-sponsored funds annual federal tax credit, must be entered in the Tax Item “LCF: Federal labour-sponsored”. To determine the amount to use for LCF for each employee, take the lesser of:
a. $750; and
b. 15% of the annual deduction for the employee’s purchase of approved shares of capital stock of a prescribed labour-sponsored venture capital corporation.

Additionally, to enable this factor’s deduction, you must edit the appropriate Tax Package to include it by placing a check mark next to the “LCF: Federal labour-sponsored” tax item in the Edit Tax Package window. If two or more employees use different amounts for LCF, each one will require a separate tax item with the correct amount. You may use the Duplicate button in the Tax Item List window to make a copy of the original and edit the amount. Then, create tax packages using Duplicate for each employee and select the appropriate LCF Tax Item that you created for that employee.

References

For further details on the Canadian payroll systems, please refer to the following publications from the Canada Customs and Revenue Agency:

Employer’s Guide: Payroll Deductions (Basic Information)
Employer’s Guide: Remitting Payroll Deductions
Payroll Deductions Formulas for Computer Programs
Employer’s Guide: Taxable Benefits
Employer’s Guide: Filing T4 and T4F Slips and Summary Forms (Includes Form RC104)
Employer’s Guide: Filing the T4A Slip and Summary Form
Payroll Deductions Tables (available for each Province or Territory, and for businesses or employees located outside Canada or outside the boundaries of any Province or Territory)

These publications are available from the Canada Customs and Revenue Agency and can be ordered at the following toll-free number: 1-800-959-2221 , or from their website at www.ccra-adrc.gc.ca.

Marital Status

Canada federal and provincial withholding taxes use the same rate for single and married employees, so it doesn't matter what you use in the Marital Status field in each Employee account record.