Managing Finances in Canada

Payroll Deductions and Income Tax

Canadians are fortunate to have access to a wide range of government programs and support services. To cover their cost, every working Canadian pays a portion of their earnings to the federal and provincial governments in the form of income tax. Higher-income earners pay more than those who earn less.

If you work for someone else, your employer is required to withhold a certain amount of every paycheque and send it to the government as payment toward your taxes for the year. But the amount is really just an approximation of what you’re likely to owe. That’s why, once a year, you’re required to file a personal income tax return — a record of everything you actually earned, minus certain deductions.

If the amount that you owe is less than what you’ve already paid through payroll deductions, you’ll get a tax refund. If it’s more, you’ll have a balance owing that will need to be paid to the government.

back to top 

Payroll Deductions: What to Expect

If a job is advertised as paying a specific annual salary, you should know that automatic deductions made on your paycheque will decrease that amount. These deductions are made for various reasons, including income tax payments.

Here’s an overview of the main items you’re likely to see on your paycheque stub:

• Gross earnings/pay — Your pay for a particular pay period. It may include:
  • Your regular salary, wages, piecework earnings or commissions
  • Overtime pay
  • Vacation pay
• Employment Insurance (EI) deductions — EI benefits are designed to replace a portion of lost wages to qualified employees who are laid off because of lack of work or who become ill for an extended time. Working Canadians pay a percentage of their earnings into this government-run insurance program. Employers contribute as well. If you lose your job, you may be entitled to draw from the program for a length of time. Find out the latest about EI deductions from Finance Canada.
• Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) — CPP and QPP are retirement plans administered by the government. Generally, the amount you receive when you retire depends on the amount you paid into it. The Canada Revenue Agency gives more information on current CPP rates. For information on QPP rates, visit Revenu Quebec.
• Income tax — Your employer is required to deduct both federal and provincial income tax. In Quebec, the provincial tax will be listed separately. In all other provinces, you’ll see just one sum for both. The Canada Revenue Agency lists both federal and provincial tax rates for your convenience.
• Benefits — Some employers offer group healthcare or dental plans that cover such things as dental care, prescription drugs and eye care. You’ll pay a premium for these, and the deductions will show on your paycheque stub.
• Union dues — If you belong to a union, the fee you pay to be a member may be deducted from your pay.
• Registered Retirement Savings Plan (RRSP) — If you’re making RRSP contributions through your employer, this deduction will be shown.
• Employer-sponsored pension fund — Some employers offer employees a pension when they retire. If you belong to one of these plans, a deduction will be made from your pay and your employer may match your contributions.
• Employee savings plan — This is an optional savings opportunity that might be arranged through your employer and can include investment choices such as mutual funds or stock in the company.
• Net pay — This is your gross pay minus any deductions — the amount written on your paycheque or deposited into your banking account.

back to top 

The content of this website is provided for the general guidance and benefit of our clients. This website is for informational purposes only and is not intended to provide specific advice. See full disclaimer.