Setting Up Payroll for Your Corporation: How to Pay Yourself and Remit Source Deductions — CPA Firm Near You, Montreal

Introduction

Once a Quebec business owner incorporates, paying yourself becomes more complicated than simply withdrawing money. If you choose salary, you must set up payroll, calculate deductions, remit taxes, and issue year-end slips. Failure to do so triggers penalties, interest, and director liability. Many new corporations make payroll mistakes in their first year, especially when switching from sole proprietorship to corporate payroll. This guide explains how to set up payroll correctly and how a CPA near you in Montreal can help ensure full compliance.

Legal and Regulatory Framework

Under the Income Tax Act, Quebec Taxation Act, and provincial employment legislation, corporations must withhold and remit income tax, RRQ, RQAP, EI, and CNESST contributions when paying salaries to shareholders or employees. Corporations must register for a CRA payroll account (RP) and a Revenu Québec employer account. Payroll remittances must be submitted monthly or more frequently depending on the corporation’s status. Employers must issue T4 and RL-1 slips annually and maintain accurate payroll registers, timesheets, resolutions, and minute book entries documenting compensation decisions.

Key Court Decisions

Courts have ruled that failing to remit payroll deductions is one of the most serious compliance breaches for directors. Judges confirmed that directors can be held personally liable for unpaid payroll taxes. Several decisions highlight that informal payments to shareholder-managers without payroll documentation are considered shareholder benefits or unreported salary. Courts emphasize that payroll obligations must be followed strictly, even when the corporation has cash flow issues.

Why CRA and Revenu Québec Scrutinize Payroll

Payroll errors are common in new corporations. CRA and RQ audit payroll when they detect: inconsistent salaries; missing remittances; incorrect tax withholdings; no payroll despite active business operations; shareholder withdrawals with no documentation; mismatches between RL-1/T4 slips and corporate tax filings; or discrepancies between GST/QST filings and payroll information. Payroll compliance is a major audit trigger.

Steps to Set Up Payroll

Step 1: Register payroll accounts

Obtain a CRA RP account and Revenu Québec employer identification.

Step 2: Determine compensation structure

Decide on salary, dividends, or a mix.

Step 3: Set up payroll software

Use tools such as Wagepoint, Nethris, QuickBooks, or Sage for automated calculations.

Step 4: Calculate deductions

Withhold income tax, RRQ, RQAP, EI (optional for owners), and CNESST.

Step 5: Submit remittances

Remit withholdings monthly or more frequently depending on remitter type.

Step 6: Document payments

Prepare director resolutions authorizing salary.

Step 7: Issue T4 and RL-1 slips

Required annually for all employees and owner-managers.

Step 8: Reconcile payroll

Ensure payroll matches corporate tax filings and bookkeeping records.

Common Payroll Mistakes

Paying yourself informally

Withdrawals without payroll or dividend declaration create shareholder loans.

Missing remittance deadlines

Triggers penalties and director liability.

Incorrect tax withholdings

Leads to reassessments and interest.

No RL-1 or T4 slips

Invalidates salary deductions on the corporate return.

Using personal accounts

Payroll must be paid from the corporate bank account.

Not documenting salary decisions

Resolutions must approve compensation.

Mackisen Strategy

At Mackisen CPA Montreal, we set up complete payroll systems for new corporations: registering employer accounts, configuring software, calculating deductions, preparing remittances, issuing T4 and RL-1 slips, reconciling payroll with bookkeeping, and ensuring compliance with CRA and Revenu Québec. We also help determine the optimal salary/dividend mix for tax efficiency.

Real Client Experience

A Montreal consultant paid herself irregular amounts without payroll. CRA assessed shareholder benefits and penalties. We corrected filings, set up payroll, and created a compliant compensation plan. Another corporation miscalculated RRQ deductions; we rebuilt payroll and corrected prior-year filings.

Common Questions

Do I need payroll if I take dividends?

No, dividends do not require payroll.

Can I skip EI?

Owner-managers may opt out, but employees cannot.

Is payroll required if the corporation made no profit?

Yes, if salary was paid.

Do I need resolutions for salary?

Yes. Director resolutions are mandatory.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures corporate payroll is accurate, compliant, and audit-ready. We help business owners avoid payroll penalties and maintain proper compensation structures.