If you have even one employee in Ontario, you are legally required to deduct and remit payroll source deductions to the Canada Revenue Agency. Missing a deadline — even by a single day — triggers automatic penalties starting at 3% and escalating to 10% or more. This guide covers everything you need to stay compliant.
The Three Source Deductions Every Employer Must Withhold
There are three types of deductions you must withhold from every employee paycheque: Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and federal/provincial income tax.
For 2025, CPP contribution rates are 5.95% on pensionable earnings between $3,500 and $68,500. EI premium rates are 1.64% on insurable earnings up to $63,200. Income tax is calculated using CRA payroll deduction tables based on the employee's TD1 form.
- CPP 2025: employee rate 5.95%, employer matches 100%
- EI 2025: employee rate 1.64%, employer pays 1.4× the employee amount
- Income tax: use CRA Payroll Deductions Online Calculator or T4032 tables
Important: Employers must also contribute the employer portion of CPP and EI on top of withholding the employee portion. This means your actual payroll cost is higher than the gross salary on the offer letter.
Remittance Deadlines and Frequencies
The CRA assigns a remittance frequency based on your average monthly withholding amount from two calendar years ago. Most new and small businesses are classified as regular remitters.
- Regular remitters: due by the 15th of the month following the pay period
- Quarterly remitters: available if average monthly withholding is under $3,000
- Accelerated remitters: twice monthly or weekly for larger payrolls
Tip: New employers are automatically classified as regular remitters. You can apply for quarterly remitter status if your average monthly withholding is under $3,000 and you have a perfect compliance history.
Penalties for Late or Missing Remittances
The CRA applies automatic penalties when remittances are late. These are not negotiable and are applied on a per-occurrence basis, so even a small late payment costs you money.
- 3% penalty if 1–3 days late
- 5% penalty if 4–5 days late
- 7% if 6–7 days late
- 10% if more than 7 days late or if a second failure occurs within 12 months
Director's liability: If your corporation fails to remit source deductions, CRA can hold directors personally liable for the unremitted amounts plus interest and penalties. This personal liability survives even if the company goes bankrupt.
Record-Keeping Requirements for Payroll
The CRA requires you to keep all payroll records for a minimum of six years. This includes employee TD1 forms, pay stubs, payroll journals, remittance receipts, and T4 slips.
- TD1 Personal Tax Credits Return — collected from each employee at hire
- Record of Employment (ROE) — issued within 5 calendar days of an interruption
- T4 slips — issued to employees and filed with CRA by the last day of February
Year-End Payroll: T4 Filing Requirements
Every year, you must prepare a T4 slip for each employee who received remuneration during the year. T4 slips and the T4 Summary must be filed with the CRA by the last day of February of the following year.
Employees must receive their T4 by the same deadline. Late T4 filing penalties start at $100 minimum and increase based on the number of slips filed late.
- Box 14: total employment income paid
- Box 16/17: CPP/QPP contributions deducted
- Box 18: EI premiums deducted
- Box 22: income tax deducted
Key Takeaways
Staying on top of payroll source deductions is one of the highest-priority compliance obligations for Ontario small business owners. The penalties for non-compliance are automatic and can be significant. Using payroll software or outsourcing to a CPA eliminates this risk entirely.
Outsource Your Payroll to a CPA
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