Creating a Payroll Account with the CRA (1)

Written by: Josh Buchanan, Magnaltus Consulting

Once your business is registered or incorporated with Saskatchewan’s corporate registry, you will automatically be issued a 9-digit federal business number. With this federal business number, you can register for a payroll account with the Canada Revenue Agency (CRA) if you hire employees.

A payroll account is a specific type of account used by the CRA to track and collect payroll deductions from businesses that employ individuals.

A payroll number is the 9-digit federal business number of a business, followed by RP 0001. RP stands for Registered Payroll. To register for a payroll account, register online using the Business Registration Online (BRO) system, or register by phone by calling the CRA business enquiries line at 1-800-959-5525.

Only businesses that are considered employers are required to set up payroll accounts. The CRA generally considers a business to be an employer if the business: pays salaries, wages, bonuses, vacation pay, or tips to workers or employees. Additionally, providing certain taxable benefits to workers such as automobile use or expense reimbursement, or allowances makes a business an employer from the perspective of the CRA.

Businesses must register for a payroll account before the first payroll remittance due date. The first remittance due date is the 15th day of the month following the month in which a business began withholding deductions from employees, unless otherwise stated by the CRA.

If a payroll account is not set up prior to hiring and paying employees, payroll deductions must still be calculated and remitted to the CRA by the due date. If payments are late, a penalty may be charged by the CRA.

The main types of payroll deductions that are withheld from employees and are remitted to the CRA by the employer through a payroll account include:

Canada Pension Plan (CPP) – a social insurance plan that is funded by the contributions of employees, employers, and self-employed people that provides income replacement to contributors and their families in the event of retirement, disability or death.

Employment Insurance Premiums (EI) – a federal employment insurance program that provides benefits to eligible unemployed people. The EI program also provides special benefits to workers who take time off work due to specific life events such as illness or pregnancy.

Federal Income Tax – taxes paid to the CRA on earned income by individuals that are used to support government programs and services like national security and the justice system. Federal tax rates are the same across all provinces in Canada.

Provincial Income Tax – taxes paid to the CRA on earned income by individuals which are used to support provincial government programs and services like education or health care. Provincial tax rates vary from province to province and are set by provincial governments.

In order to register for a payroll account, the following information must be provided:

social insurance number of the registrant (owners)
date employees receive their first wages (if known)
months covered for payroll of employees’ wages
type of pay period (eg. biweekly, semimonthly)
number of employees
payroll service name (if any)

When adding new employees to a payroll account, federal and provincial TD1 forms should be filled out by the employee and submitted to the employer. TD1 forms are used to calculate the correct amount of federal and provincial or territorial income tax deductions for each employee.

Before adding a worker to a payroll account and withholding payroll deductions, it’s important to determine if workers are employees or independent contractors. To determine this, the CRA looks at the following factors:

the level of control the payer has over the worker’s activities
whether the worker or payer provides the tools and equipment
whether the worker can subcontract the work or hire assistants
the degree of financial risk the worker takes
the degree of responsibility for investment and management the worker holds
the worker’s opportunity to profit
any other relevant factors, such as written contracts

If workers are considered independent contractors rather than employees, they do not need to be set up on payroll or have payroll deductions withheld. However, if the CRA determines that a business has employees rather than independent contractors, but payroll deductions were not withheld from the employees or remitted by the employer, the employer will be responsible for paying any missed deductions.

At the end of the year, employers must provide T4 slips which summarize the cumulative payroll deductions and wages paid to their employees. The T4 slips must be issued to their employees and to the CRA by the end of February each year. For independent contractors, employers must provide T4A slips to the contractor and the CRA if payouts in the calendar year were more than $500. The T4A slips are also due by the end of February each year and include information from the prior calendar year.

In addition to being compliant with CRA payroll requirements, businesses should also ensure that they are compliant with provincial labour standards. Provincial labour standards establish how employers must treat employees when it comes to frequency of payments, minimum wage, allotted holiday time, scheduling, and other labour-related subjects.

For self-employed individuals with no employees, a payroll account is not required. The business income for individuals operating as a sole proprietor or in a partnership is added to the personal tax return as business on the T2125 form. Income taxes and CPP payments are assessed based on the tax return and the owners are exempt from EI payments.

For shareholders of corporations who have themselves on payroll for the corporation, a payroll account must be set up. The corporation must collect and remit payroll deductions (except EI) from the shareholder who is employed by the corporation.

Payroll is something that all business owners with employees have to set up and maintain. Like other accounts such as sales tax accounts, payroll can be difficult to navigate at first. Starting out, it’s advisable to seek support from the CRA’s resources and consult with a payroll professional. Payroll professionals can help ensure the account is set up properly and deductions are collected and remitted on time. Specialized payroll software can also be utilized to help make paying employees and keeping records easier and more organized.

Sources:

Payroll Account Information – https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/open-manage-payroll-account.html

CRA Account Registration – https://www.canada.ca/en/revenue-agency/services/e-services/cra-login-services/register-cra-sign-in-services.html

CRA Payroll Information – https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll.html

CRA Payroll Account Management Information – https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/open-manage-payroll-account/after-you-register.html

CRA Payroll Calculations Information – https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/calculating-deductions.html

CRA Payroll Calculator – https://www.canada.ca/en/revenue-agency/services/e-services/digital-services-businesses/payroll-deductions-online-calculator.html

Information on Determining Employment Relationship – https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/determine-relationship-employer-payer.html

TD1 Forms – https://www.canada.ca/en/revenue-agency/services/forms-publications/td1-personal-tax-credits-returns/td1-forms-pay-received-on-january-1-later.html

T4 Information – https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/completing-filing-information-returns/t4-information-employers/t4-slip.html

T4 Forms – https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t4.html

T4A Information – https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t4a.html