If your business employs anyone (including family members), as an employer you are obliged to withhold certain statutory deductions from their wages or salaries and remit those amounts to the federal government, along with your employer’s contribution (where that is required).
Statutory deductions generally fall into three categories: income tax, employment insurance premiums, and Canada Pension Plan (CPP) contributions.
Income tax is the only statutory deduction which is paid entirely by the employee. The amount which must be withheld from an employee’s salary or wages is prescribed by the tax authorities. The employer’s obligation is to withhold the required amounts and remit them in their entirety to the federal government on behalf of the employees on a timely basis. The CRA publishes payroll deduction tables which indicate the required amounts, and those tables are also available from the Agency in a computerized version.
Employment insurance premiums
Most Canadian employees pay into the employment insurance program and are therefore eligible to receive employment insurance benefits if they become unemployed. Like income tax, employment insurance premiums are deducted by the employer from an employee’s wages or salary and remitted to the federal government. However, unlike income tax, the employer is also expected to make a contribution on the employee’s behalf when it comes to employment insurance premiums.
The amount of employment insurance premiums payable by an employee is calculated as a percentage of income, to a specified maximum. For 2014, in all
jurisdictions other than Quebec, the specified percentage for employees is 1.88%. The employer contribution on behalf of an employee is 2.42%, so that the total employment insurance premium for the employee is equal to 4.3% of wages or salary. The maximum employee contribution for 2014 is $914, while the maximum contribution to be made by an employer in respect of one employee is $1,279.
Many small business owners employ family members in the business, often in the early years of the business, and when it comes to employment insurance, the status of family employees is a grey area. The general rule is that family members employed in a family business are not engaged in insurable (that is, qualifying) employment. Consequently, no employment premiums need to be withheld or remitted on their behalf, and they would not, if unemployed, qualify to receive employment insurance benefits. However, the CRA’s Guide for Canadian Small Businesses notes that such an employee can be in insurable employment if you, as the business owner, would have negotiated a similar contract with a person who was not your family member. If this is your situation, more information on making that determination can be found in the CRA’s publication on Payroll Deductions (Basic Information), which is available on the Agency’s Web site at http://www.cra-arc.gc.ca/menu-e.html.
Canada Pension Plan contributions
As with income tax and employment insurance premiums, contributions to the Canada Pension Plan are based on a specified percentage of the employee’s wages. That percentage amount (to a statutory maximum) is withheld from those wages and remitted to the federal government on the employee’s behalf by the employer. Once again, the employer is expected to make a contribution on the employee’s behalf, but here the contribution is exactly equal to that made by the employee.
For 2014, the specified percentage is 4.95% of income. Therefore, the employer is required to withhold and remit 4.95% of an employee’s wages, and to match that amount, so that the total amount remitted to the federal government on behalf of a particular employee is equal to 9.9% of that employee’s wages. The maximum amount which is payable by any employee for 2014 is $2,425.50, and the matching employer contribution is the same, for a total contribution of $4,851.
For self-employed taxpayers, there is an aspect to the CPP that should be remembered. If you own your own business, the income of the business is your
income. You are obliged to remit CPP contributions on that net business income, and you are also required to pay both the employer and the employee portions of those contributions. In other words, if you earn $52,500 from your business, you must remit the maximum total contribution of $4,851 on your own behalf. As both the employer and the employee, you do not have to remit amounts on a monthly or quarterly basis. Rather, there is a provision made on your income tax return to calculate the amount of any CPP contributions owed on income from self-employment and that amount is remitted together with any final income balance owed.
Most employers are required to remit amounts withheld at source to the federal government on a monthly basis, with very large employers subject to more frequent remittance deadlines. However, as a small business owner, it may be possible for you to make the required remittances quarterly rather than monthly; if that is the case, the CRA will let you know.
The articles posted here provide information of a general nature. These articles should not be considered specific advice; as each vistor’s personal financial situation is unique and fact specific. Please contact a professional advisor prior to implementing or acting upon any of the information contained in these articles.
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