Chapter 2 - General information

On this page...

• Are you an employer?
• What are your responsibilities?
• Payroll deductions tables
• Changes to your business entity
• Penalties and interest
• How do you appeal an assessment or a ruling?

Are you an employer?

We generally consider you to be an employer if:

• you pay salaries, wages (including advances), bonuses, vacation pay, or tips to your employees; or
• you provide certain taxable benefits or allowances, such as board and lodging, to your employees.

An employer-employee relationship exists if you have the right to control and direct the person or people who perform the services. We explain this relationship in this guide as employment under a contract of service. Although a written contract might indicate that an individual is self-employed or working under a contract for services, we may not consider the individual as such if there is evidence of an employer-employee relationship.

The written contract and working conditions must be examined to determine if an employer-employee relationship exists. If you're not sure if the person working for you is considered an employee, see the publication called Employee or Self-Employed? (RC4110).

If you or a person working for you have any doubt about whether an employer-employee relationship exists, you can request a ruling. Complete Form CPT1, Request for a Ruling as to the Status of a Worker Under the Canada Pension Plan or Employment Insurance Act, and send it to the attention of Revenue Collections, at any tax services office.

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Employment by a trustee

A trustee includes a liquidator, receiver, receiver-manager, trustee in bankruptcy, assignee, executor, administrator, sequestrator, or any other person who performs a function similar to the one a trustee performs. A trustee does the following:

• authorizes a payment or causes a payment to be made for another person; and
• administers, manages, distributes, winds up, controls, or otherwise deals with another person's property, business, estate, or income.

The trustee is jointly and severally liable for deducting and remitting the tax for all payments the trustee makes.

Trustee in bankruptcy

Under the Canada Pension Plan and the Employment Insurance Act, the trustee in bankruptcy is the agent of the bankrupt employer in the event of an employer's liquidation, assignment, or bankruptcy.

If a bankrupt employer has deducted Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, or income tax from amounts employees received before the bankruptcy, and the employer has not remitted these amounts to us, the trustee must hold the amounts in trust. These amounts are not part of the estate in bankruptcy and should be kept separate.

If a trustee carries on the bankrupt employer's business, the trustee has to continue to deduct and remit the necessary CPP contributions, EI premiums, and income tax according to the bankrupt employer's remittance schedule. T4 slips should be prepared and filed in the usual way.

Note
Amounts paid by a trustee to employees of a bankrupt corporation to settle claims for wages that the bankrupt employer did not pay are considered taxable income. However, this income is not subject to CPP, EI, and income tax withholdings. These payments are to be reported on T4A slips.

Estate executors or liquidators, and administrators

Fees paid to executors or liquidators and administrators are either income from office or employment or business income, depending on whether the executor or administrator acts in this capacity in the regular course of business. To determine if the fees paid are subject to CPP contributions, see "Amounts and benefits subject to CPP contributions."

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Payer of other amounts

A payer of other amounts can be an employer, trustee, estate executor, liquidator, administrator, or a corporate director who pays other types of income related to an employment. This income can include pension or superannuation, lump-sum payments, self-employed commissions, annuities, retiring allowances, or any other type covered in this publication or in the Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary Form (RC4157). These types of amounts are to be reported on a T4A slip.

What are your responsibilities?

You are responsible for deducting, remitting, and reporting payroll deductions. You also have responsibilities in situations such as hiring an employee, when an employee leaves or if the business ceases operations.

The following are responsibilities the employer, and in some circumstances, the trustee and payer must follow.

• Open and maintain a payroll deductions account. If you meet the criteria to open an account, you must register to obtain one.
• Get your employee's social insurance number (SIN). Every employee must show you his or her SIN card to work in Canada. See the SIN topic below.
• Obtain a completed federal TD1 and, if applicable, a provincial or territorial TD1. New employees or recipients of other amounts such as pension income must complete this form. See Deducting income tax for more information .
• Deduct CPP contributions, EI premiums, and income tax from remuneration or other amounts you pay. You should hold these amounts in trust for the Receiver General for Canada and keep them separate from the operating funds of your business. Make sure these amounts are not part of an estate in liquidation, assignment, receivership, or bankruptcy.
• Remit these deductions along with your share of CPP contributions and EI premiums. The CPP and EI chapters will explain how to calculate your share of contributions and the last chapter explains how and when to remit these amounts.
• Report the employees' income and deductions on the appropriate T4 or T4A slip. You must file an information return by the end of February of the following calendar year. For more information see Filing information returns.
• Complete and issue Form INS2106, Record of Employment, when an employee leaves. For more information see EI and the Record of Employment.
• Keep records. You must keep records of what you do as our officers can ask to see them.

• Keep your paper and electronic records for at least six years from the end of the last tax year to which they relate. However, if you want to destroy them before the period is over, complete Form T137, Request for Destruction of Books and Records. For more information, see Information Circular 78-10, Books and Records Retention/Destruction or the guide called RC4409, Keeping Records.

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Social insurance number (SIN)

As an employer, you have to get the correct SIN from each employee. If the employee does not give you his or her SIN, you should be able to show that you made a reasonable effort to get it. For example, if you contact an employee by mail to ask for his or her SIN, be sure to record the date of your request and keep a copy of any correspondence that relates to it. We consider this to be a reasonable effort. If you do not make a reasonable effort to get a SIN, you may be subject to a penalty of $100 for each failure. Employees also have to give you their SIN. If an employee does not do this, the employee may be subject to a penalty of $100 for each failure.

Under the Canada Pension Plan Regulations, you have to tell your employees who don't have a SIN card how to get a SIN. Refer them to their local Human Resources Centre of Canada (HRCC) office within three days of the day they start work and ask them to provide you with their new SIN once they receive it.

Every person employed in pensionable or insurable employment has to show their SIN card to their employer. Always use the correct name and number as shown on the employee's SIN card. An incorrect SIN can affect an employee's future CPP benefits if the record of earnings file is not accurate. Also, if you report an incorrect SIN on a T4 slip that has a pension adjustment (PA) amount, the employee may receive an inaccurate annual Registered retirement savings plan (RRSP) deduction limit statement. In addition, the related information on the employee's Notice of Assessment will be inaccurate.

When an employee has an interruption in earnings, you have to record the correct SIN on a Record of Employment (ROE) for EI purposes. If you don't, you could be fined up to $2,000, imprisoned for up to six months, or both.

Note
Until such time you receive your employee's SIN, you still have to make deductions and file your information returns no later than the last day of February. If you do not, you may be subject to a penalty for late filing.
If you filed a T4 slip without a SIN but subsequently received it, file an amended T4 slip and include the SIN. See Filing a T4 Slip and Summary Form (RC4120) for instructions on how to amend.

For more information, see Information Circular 82-2, Social Insurance Number Legislation That Relates to the Preparation of Information Slips or visit the Social Development Canada Web site at www.sdc.gc.ca.

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SIN beginning with the number "9"

An eligible person who is not a Canadian citizen or a permanent resident of Canada and who applies for a SIN will get a SIN beginning with the number "9." That person will be authorized to work only for a particular employer, and must have a valid employment authorization issued by Citizenship and Immigration Canada.

If you hire a person whom you know is not a Canadian citizen or permanent resident, make sure that:

• the person's SIN begins with the number "9";
• the SIN card has an expiry date; and
• the person has a valid employment authorization which states that he or she will work only for you.

Under the Immigration Act, only the following persons are authorized to work in Canada:

• Canadian citizens;
• permanent residents; or
• persons who have a valid employment authorization.

Hiring someone else could lead to penalties under the Immigration Act.

Note
If a SIN begins with a "9" and the SIN card does not have an expiry date, the card is no longer valid. Refer the person to their local Human Resources Centre of Canada (HRCC) office.

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Payroll deductions tables

The payroll deductions tables have information to help you calculate CPP contributions, EI premiums, and the amount of federal, provincial (except Quebec), and territorial income tax that you have to withhold from amounts you pay.

You can get any of the following versions of the payroll deductions tables:

• Payroll Deductions Tables (T4032) and Payroll Deductions Supplementary Tables (T4008) - You can use these tables to calculate your employees' payroll deductions. You can download and print any selected pages or you can order the paper copy from our Web site at www.cra.gc.ca/orderforms or by calling 1-800-959-2221.

Payroll deductions tables for all provinces and territories are available on our Web site at www.cra.gc.ca/payroll. They are usually posted three weeks before the printed copies are available.

• Tables on Diskette (TOD) (T4143) - The tables on diskette are an electronic version of the Payroll Deductions Tables and Payroll Deductions Supplementary Tables. TOD calculates payroll deductions for all provinces (except Quebec) and territories. TOD calculates the deductions for any pay period, for commission income, for special payments such as bonuses and most taxable automobile benefits. TOD calculates Canada Pension Plan contributions, Employment Insurance premiums, and the federal, provincial (except Quebec), and territorial income tax that you withhold from an employee's or pensioner's income.

TOD is available on our Web site at www.cra.gc.ca/tod. It is also available on the Electronic Document Distribution System (EDDS).

• Payroll Deductions Formulas for Computer Programs (T4127) - If you have a computer, you may want to use these formulas instead of the printed tables to calculate your employees' payroll deductions. This publication contains formulas to calculate CPP contributions, EI premiums, and federal, provincial (except Quebec), and territorial income tax.

If the computer formulas you want to use are different from ours, you have to submit them to any tax services office or tax centre for approval.

All the payroll deductions tables are available for each province and territory, and also for employees working outside Canada.

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Which provincial or territorial tax tables should you use?

When you pay employment income such as salaries, wages, or commissions, you have to determine your employee's province or territory of employment. This depends on whether or not you require your employee to report for work at your place of business.

If the employee reports for work at your place of business, the province or territory of employment is the province or territory where your business is located.

To withhold payroll deductions, use the tax tables for that province or territory of employment.

Example 1
Your head office is in Ontario, but you require your employee to report to your place of business in Manitoba. In this case, use the Manitoba Payroll Deductions Tables.

Example 2
Your employee lives in Quebec, but you require your employee to report to your place of business in New Brunswick. In this case, use the New Brunswick Payroll Deductions Tables.

If you do not require your employee to report for work at your place of business, the employee's province or territory of employment is the province or territory where your business is located and from where you pay your employee's salary.

Example
Your employee does not have to report to any of your places of business, but you pay the employee from your office in Quebec. In this case, use the Quebec Payroll Deductions Tables. The employee is not subject to CPP contributions, but could be subject to Quebec Pension Plan (QPP) contributions.

Note An employee who lives in one province or territory but works in another one may be subject to excessive tax deductions. If so, he or she can ask for a reduction in tax deductions, by getting a letter of authority from any tax services office. For more information, see "Letter of authority." An employee who lives in one province or territory but works in another may not have enough tax deducted. If this is the case, the employee should request additional tax deductions at source on Form TD1, Personal Tax Credits Return.

If you paid amounts other than employment income, such as pension income, use the provincial or territorial table of the recipient's province or territory of residence.

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What should you do if you do not have any employees for a period of time?

Inform us by calling our TeleReply service or send us your completed remittance form and indicate when you expect to have employees subject to deductions.

Changes to your business entity

What should you do if your business stops operating?

• Remit all CPP contributions, EI premiums, and income tax withheld to your tax centre within seven days of the day your business ends.
• Calculate the pension adjustment (PA) that applies to your former employees who accrued benefits for the year under your registered pension plan (RPP) or deferred profit sharing plan (DPSP).
• Prepare and give a Record of Employment (ROE) to each former employee.
• Complete and file the necessary T4 or T4A slips and summary form with the Ottawa Technology Centre within 30 days of the day your business ends. Distribute copies of the T4 or T4A slips to your former employees.

For information on how to complete the T4 or T4A slips and summary form, get the publication called Filing the T4 Slip and Summary Form (RC4120) or Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary Form (RC4157).

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What happens if you change your business status?

If you change your business status, we consider you to be a new employer. You may need a new Business Number (BN) and a new payroll account. Call 1-800-959-5525 to let us know if your business status has or will change in the near future.

The following are examples of changes to a business status:

• You are the sole proprietor of a business and you decide to incorporate.
• You and a partner own a business. Your partner leaves the business and sells his half interest to you, making you a sole proprietor.
• You and your partners own part of a business. The group decides to incorporate.
• Your corporation merges with one or more corporations to form a new one.

What should you do if your business goes through a restructure or reorganization?

If your business does not qualify from this new policy and you know that some employees paid the maximum CPP/EI deductions for the year before the restructure or reorganization, you may want to ask for administrative relief for your employees. For more information, call 1-800-959-5525.

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Penalties and interest

Penalty - Failure to deduct

We can assess a penalty of 10% of the required amount of CPP, EI, and income tax you failed to deduct.

If you are subject to this penalty more than once in a calendar year, we may apply a 20% penalty to the second or later failures if they were made knowingly or under circumstances of gross negligence.

Penalty - Failure to remit

We can assess a penalty of 10% up to 20% of the amount you failed to remit when:

• you withhold the amounts, but do not remit them; or
• we receive the amounts you withheld past the due date.

Example
A remittance that was due on January 15 of the current year (for deductions made in December of the previous year) is considered late when paid with the previous year's information return (T4, T4A), and this return is filed after January 15.

Normally, we only apply this penalty to the part of the amount you failed to remit that is more than $500. However, we may apply the penalty to the total amount if the failure was made knowingly or under circumstances of gross negligence.

Note
We will apply a penalty on a non-sufficient funds cheque.

If the remittance due date is a Saturday, Sunday, or public holiday, your remittance is due on the next business day.

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Interest

We can charge interest from the day your payment is due. For due dates, see Remitter types and due dates .

Obligations and liabilities

Offences and punishment

If you fail to comply with the withholding, remitting, and reporting requirements, you may be prosecuted. You could be fined from $1,000 up to $25,000, or you could be fined and imprisoned for a term of up to 12 months.

Director's liability

If a corporation (including for-profit or non-profit corporations) fails to withhold, remit, or pay amounts held in trust for the Receiver General for Canada (CPP, EI, income tax, and GST/HST), the directors of the corporation at the time of the failure may be held personally liable along with the corporation to pay the amount due. This amount includes penalties and interest.

However, if the directors take action to ensure the corporation makes the necessary deductions or remittances, we will not hold the directors personally responsible. See Information Circular 89-2, Directors' Liability - Section 227.1 of the Income Tax Act and Section 323 of the Excise Tax Act.

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Waiving penalties and interest

The fairness provisions of the Income Tax Act give us certain discretion to cancel or waive all or a part of interest charges and penalties. This flexibility allows us to consider extraordinary circumstances that may have prevented you from fulfilling your obligations under the Canada Pension Plan, Employment Insurance Act, and the Income Tax Act. See Information Circular 92-2, Guidelines for the Cancellation and Waiver of Interest and Penalties.

How do you appeal an assessment or a ruling?

If you receive an assessment for CPP contributions, EI premiums, or income tax that you do not agree with, or you have received a rulings letter and you disagree with the decision, you have 90 days after the date of the assessment or notification of the ruling to appeal. However, before you file an appeal, you may want to call 1-800-959-5525 to discuss the matter. This could solve the problem and save you the time and trouble of appealing.

To appeal the amount of income tax that we indicate you owe, you can:

• file Form T400A, Objection - Income Tax Act; or
• write to the chief of appeals at any tax services office or tax centre. State the reasons why you do not agree with the assessment, and give all the related facts.

To appeal the CPP contributions or EI premiums that we indicate you owe, or to appeal the rulings decision, you can:

• file Form CPT100, Appeal Under the Canada Pension Plan and/or Employment Insurance Act; or
• write to the chief of appeals at any tax services office. Attach a copy of the assessment or ruling, state the reasons why you do not agree with the assessment or ruling, and give all the related facts.

For information on how to appeal a CPP and/or EI assessment or ruling, see the publication P133 called Your Appeal Rights - Employment Insurance and Canada Pension Plan Coverage).

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