Payroll Deductions — CPP, EI, and Income Tax

Introduction
Understanding payroll deductions CPP EI and income tax is essential for every employer in Canada — from small businesses and startups to established corporations, non-profits and professional firms. Employers are legally responsible for calculating, withholding, and remitting payroll deductions accurately and on time. Errors lead to penalties, interest, payroll audits and personal liability for directors. Québec adds an entirely separate set of rules through QPP, QPIP, HSF and CNESST. Whether hiring your first employee or managing a growing team, this guide explains your complete responsibilities for payroll deductions CPP EI and income tax.

Legal and Regulatory Framework
Payroll deductions CPP EI and income tax arise under the:

• Income Tax Act
• Canada Pension Plan Act (CPP)
• Employment Insurance Act (EI)
• Québec Tax Administration Act
• QPP and QPIP legislation
• CNESST and HSF regulations

Employers must:

• withhold federal and provincial income tax
• deduct and remit CPP (or QPP in Québec)
• deduct and remit EI (or QPIP in Québec)
• issue T4 and RL-1 slips annually
• remit payroll deductions by CRA and Revenu Québec deadlines
• maintain payroll records for at least six years

Not complying with payroll deductions CPP EI and income tax can trigger severe employer liabilities.

CPP vs QPP (Québec)
• Employees working outside Québec → CPP applies
• Employees working inside Québec → QPP applies
Employers must calculate the correct contribution rate, annual maximum and remittance frequency.

EI vs QPIP (Québec)
• EI applies across Canada for sickness, caregiving and employment benefits
• Québec Parental Insurance Plan (QPIP) replaces EI maternity/parental benefits

This means employers in Québec must contribute to QPIP, not EI, for Québec-based employees.

Income Tax Withholding
Income tax withholding depends on:

• employee TD1 and TP-1015.3 forms
• taxable benefits
• bonuses
• vacation payouts
• statutory deductions
• union dues and garnishments
• payroll frequency (weekly, biweekly, monthly)

CRA and Revenu Québec provide payroll deduction calculators, but employers remain legally responsible for accuracy.

Key Court Decisions
Courts have ruled extensively on payroll deductions CPP EI and income tax. Key principles include:

• employers are liable for unpaid deductions, even if the error was unintentional
• directors may be held personally responsible for unremitted taxes
• ignorance of payroll rules is not a defense
• incorrect classification of employees as contractors triggers payroll reassessments
• taxable benefits must be included in payroll calculations
• CRA may garnish bank accounts or seize assets for unpaid remittances

Québec courts similarly enforce strict compliance with QPP, QPIP, CNESST and HSF remittances.

Why CRA and Revenu Québec Target Payroll Issues
Payroll deductions CPP EI and income tax are top audit priorities because:

• payroll tax is considered trust money
• non-compliance results in revenue loss
• payroll errors are very common
• misclassification of employees is widespread
• directors are personally liable for remittance failures

Audit triggers include:

• late or missed remittances
• discrepancies between T4 and RL-1 slips
• mismatched payroll vs corporate tax filings
• no payroll remittances for employees paid
• high taxable benefits without proper reporting
• paying employees as “contractors”
• repeated payroll corrections

Understanding these triggers helps employers remain compliant.

Mackisen Strategy
Mackisen CPA provides a complete and compliant payroll system to meet payroll deductions CPP EI and income tax requirements:

• determining employee vs contractor status
• registering payroll accounts with CRA and Revenu Québec
• setting up QPP, QPIP, EI, CNESST and HSF obligations
• calculating accurate deductions each pay period
• implementing professional payroll software (QuickBooks, Wagepoint, Ceridian)
• reconciling payroll with GST/HST and corporate tax filings
• issuing T4/T4A and RL-1/RL-2 slips
• preparing annual summaries
• correcting past payroll errors through voluntary disclosures
• representing employers during CRA and Revenu Québec payroll audits

We ensure full compliance across both federal and Québec payroll systems.

Real Client Experience
Many businesses approach Mackisen after encountering payroll issues:

• A company miscalculated EI and CPP for a year. CRA reassessed the employer and demanded corrections. We recalculated payroll and minimized penalties.
• A Québec employer remitted EI instead of QPIP. Revenu Québec required full retroactive corrections. Mackisen rebuilt payroll records.
• A business misclassified several workers as contractors. CRA reclassified them as employees, triggering payroll liabilities. We resolved the audit and implemented compliant practices.
• A corporation failed to include taxable benefits for personal use of a company car. CRA reassessed payroll taxes. Mackisen corrected all slips.
• A startup missed multiple payroll filing deadlines due to rapid growth. We implemented a full payroll system and restored compliance.

These cases show the importance of properly handling payroll deductions CPP EI and income tax.

Common Questions
Clients frequently ask:

• What happens if I submit payroll deductions late?
Automatic interest and penalties apply.

• Do directors really become personally liable?
Yes—especially for long-term unpaid remittances.

• Do I need payroll if I only pay dividends?
No payroll—unless employees also receive salaries.

• Are bonuses subject to CPP/EI?
Yes—bonuses are fully taxable and subject to CPP and EI/QPIP.

• Do remote employees follow Québec payroll rules?
Employees follow the rules of the province in which they work.

• Can CRA audit payroll?
Yes—CRA audits payroll frequently.

Understanding these answers helps employers comply with payroll deductions CPP EI and income tax.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they're entitled to. Whether you're hiring your first employee or managing a full payroll department, our expert team ensures precision, transparency and protection from audit risk. When handling payroll deductions CPP EI and income tax, Mackisen provides full payroll setup, remittance support, annual slips, reconciliation and audit defense.