Employer Payroll Obligations in Canada: T4s, Remittances, and What the CRA Expects

The moment you hire your first employee in Canada, you take on a set of payroll obligations that the CRA enforces aggressively: registering a payroll account, calculating and withholding source deductions (CPP, EI, and income tax), remitting those deductions on schedule, and filing T4 slips by the end of February each year. Miss a remittance or file late, and the penalties start at 3% and climb to 10% for repeat offenders.

At Tohme Accounting, we set up and manage payroll for small businesses across Ottawa and Toronto. The most common mistake we see is a business owner who hires their first employee and does not realize the obligations exist until the CRA sends a notice. The second most common mistake is treating a worker as a contractor when the CRA considers them an employee. Both situations result in penalties, back-assessed CPP and EI, and interest.

This guide covers the full cycle of employer payroll obligations for the 2026 tax year: registering with the CRA, calculating deductions, remitting on time, filing year-end slips, and the director liability rule that makes business owners personally responsible for unremitted payroll taxes.

Registering as an Employer

Before your first payroll, you need a CRA payroll program account. If your business already has a Business Number (BN) for GST/HST or corporate tax, you add a payroll account (suffix “RP”) to your existing BN. If you do not have a BN, you register for one and add the payroll account at the same time.

You can register online through CRA’s Business Registration Online service, by phone at 1-800-959-5525, or by mail using Form RC1 (Request for a Business Number). Online registration is processed within a few business days. Mail takes 2 to 3 weeks.

Registration is required before your first payroll date. You cannot retroactively register after paying an employee and then remit the deductions late. The CRA considers the obligation to withhold as arising on the date of payment, and any deductions not remitted by the due date attract penalties regardless of when you registered.

If you recently incorporated and plan to pay yourself a salary, you need a payroll account even though you are the only employee. The corporation is a separate legal entity from you, and paying yourself a salary is an employer-employee transaction from the CRA’s perspective.

Source Deductions: CPP, EI, and Income Tax

Every paycheque you issue must have three types of deductions withheld at source: Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums, and federal/provincial income tax.

CPP for 2026: The employee contribution rate is 5.95% on pensionable earnings between $3,500 (the basic exemption) and $73,200 (the first ceiling). The employer matches the employee’s contribution dollar for dollar. CPP2, which applies to earnings between $73,200 and $79,400, has a separate rate of 4.00% with no employer match. Maximum employee CPP contribution for 2026 is approximately $4,148 (first ceiling) plus $248 (CPP2).

EI for 2026: The employee premium rate is 1.64% on insurable earnings up to $65,700. Maximum employee premium is $1,077.48. The employer pays 1.4 times the employee’s premium, so the employer’s cost is approximately $1,508.47 per employee at maximum insurable earnings. Small businesses eligible for the Small Business Job Credit pay a reduced employer rate.

Income tax: Calculated using the CRA’s payroll deduction tables (T4032) for your province, based on the employee’s TD1 Personal Tax Credits Return. The tables account for the basic personal amount and other credits the employee has claimed. You can use the CRA’s free Payroll Deductions Online Calculator (PDOC) to calculate the exact withholding for each pay period.

Our team at Tohme Accounting sets up payroll deduction calculations for new employers as part of our small business tax services. We also handle the TD1 forms and ensure the withholding rates are correct from the first paycheque.

Remittance Deadlines: When to Send the Money

After withholding source deductions, you must remit them to the CRA by a specific date. The deadline depends on your average monthly withholding amount (AMW), which the CRA calculates based on your remittance history from two calendar years prior.

New employers default to regular (monthly) remittance. You remit by the 15th of the month following the month you made the deductions. If you paid employees in September, remittances are due by October 15.

The CRA notifies you of your remitter type each year. If your AMW increases, you may be moved to accelerated remittance. If it decreases, you can apply to be moved back.

Remit through your bank’s online business portal, through CRA’s My Business Account, or by mailing a cheque with Form PD7A. Electronic remittance is required if your AMW is $10,000 or more.

Missing a remittance deadline triggers penalties immediately. There is no grace period.

Penalties for Late or Missing Remittances

The CRA’s penalty structure for late payroll remittances is progressive, and repeat offenders face steep escalation:

These penalties apply to each late remittance separately. If you miss two monthly remittances in the same year, the second one is treated as a repeat occurrence with the higher penalty rate.

Interest also accrues on late remittances at the CRA’s prescribed rate (currently 10% annually, compounded daily). The interest runs from the day the remittance was due until the day it is paid.

For a small business with 5 employees and monthly remittances of $8,000, a single late payment by 8 days costs $800 in penalties plus interest. Two late payments in the same year cost $800 for the first and up to $800 for the second at the 10% repeat rate. These amounts add up fast.

The CRA can also assess a penalty under ITA section 227(8) for failing to withhold at all. If you paid an employee without deducting CPP, EI, and income tax, the employer is liable for the full amount that should have been withheld, plus the employer’s matching contributions, plus penalties and interest. The employee still gets credit for the deductions, and the employer absorbs the cost.

Director Liability: Personal Risk for Business Owners

Under ITA section 227.1, directors of a corporation are jointly and severally liable for unremitted payroll deductions. If your corporation fails to remit CPP, EI, or income tax withheld from employees, the CRA can assess you personally for the full amount, plus penalties and interest.

This is not a theoretical risk. The CRA uses director liability assessments regularly, particularly when a corporation becomes insolvent or ceases operations with outstanding payroll debts. The assessment can arrive years after the corporation has closed.

There is one defence: the due diligence defence under ITA subsection 227.1(3). To succeed, you must demonstrate that you exercised the degree of care, diligence, and skill that a reasonably prudent person would have exercised in comparable circumstances to prevent the failure to remit. In practice, this means you need to show that you had systems in place to ensure remittances were made on time, that you monitored those systems, and that the failure was not due to your neglect.

Courts have rejected the due diligence defence in cases where the director was aware that remittances were being deferred to cover other expenses (a common situation for cash-strapped businesses). The CRA’s position is clear: payroll remittances are held in trust for the Crown and must be paid before other creditors.

If you are a director of an incorporated business, this liability applies to you personally. At Tohme Accounting, we make sure our corporate clients understand this risk and have remittance procedures that protect them. If your corporation is behind on payroll remittances, contact us immediately. The sooner the situation is addressed, the more options you have.

T4 vs T4A: The Employee vs Contractor Distinction

At year end, you issue T4 slips to employees and T4A slips to independent contractors. Getting this classification wrong is one of the most expensive payroll mistakes a business can make.

The CRA uses a multi-factor test to determine whether a worker is an employee or a contractor. The factors include:

• Control: Does the employer control how, when, and where the work is done?
• Tools and equipment: Does the worker supply their own, or does the employer provide them?
• Financial risk: Can the worker profit or lose money from the engagement?
• Integration: Is the worker integrated into the employer’s business or operating independently?
• Specific result: Is the worker hired to achieve a specific result, or to work ongoing hours?

If the CRA reclassifies a contractor as an employee, the employer owes the CPP and EI contributions (both employee and employer portions) that should have been withheld, plus penalties and interest, for every pay period going back up to 4 years. On a $60,000 annual payment, the retroactive CPP and EI liability alone can reach $12,000 to $15,000 per year.

The CRA actively audits businesses with workers paid on T4A slips, particularly in construction, IT consulting, and delivery services. If your business relies on contractors, make sure the relationship genuinely meets the contractor test. If you are uncertain, the CRA offers a ruling service (Form CPT1) where you can request a determination before a problem arises.

For the T4A-NR (payments to non-resident contractors), a separate withholding obligation of 15% applies under Regulation 105 unless the contractor has a CRA waiver. This catches cross-border businesses that hire US-based freelancers.

Year-End Filing: T4s, T4 Summary, and the February 28 Deadline

By February 28 of each year (or the next business day if it falls on a weekend), employers must file T4 slips for every employee who received employment income during the previous calendar year, along with the T4 Summary (totals for all employees).

Each T4 slip reports the employee’s total employment income, CPP contributions, EI premiums, income tax deducted, and other amounts like RPP contributions, union dues, and taxable benefits. Employees must receive their T4 by the same February 28 deadline.

File electronically through the CRA’s Web Forms application or through payroll software that generates XML files for upload. If you have more than 5 T4 slips, electronic filing is mandatory.

Common year-end errors:

• Forgetting to include taxable benefits (employer-paid health/dental premiums above provincial thresholds, personal use of a company vehicle, stock option benefits)
• Misreporting pensionable vs non-pensionable earnings
• Not issuing a T4 for owner-managers who paid themselves a salary (the corporation is the employer, you are the employee)
• Filing T4s but not the T4 Summary

The penalty for late T4 filing is $100 per slip for the first day, plus $25 per slip per day thereafter, up to $7,500 per year. For a business with 10 employees filing 30 days late, the penalty is $8,500 (capped at $7,500). The CRA assesses these penalties automatically.

If you are behind on T4 filings from prior years, our team can prepare and file them as part of getting your corporate compliance current.

First-Time Employer Checklist

If you are hiring your first employee, here is the sequence:

1. Register for a CRA payroll account (add RP to your BN, or register for a new BN with a payroll account)
2. Have the employee complete Form TD1 (federal and provincial) before their first pay date
3. Set up payroll calculations using the CRA’s Payroll Deductions Online Calculator or payroll software
4. Withhold CPP, EI, and income tax from every paycheque
5. Remit deductions to the CRA by the 15th of the following month
6. Issue a Record of Employment (ROE) within 5 calendar days if the employee stops working
7. File T4 slips and T4 Summary by February 28 of the following year
8. Keep payroll records for at least 6 years

Steps 3 through 6 repeat every pay period. At Tohme Accounting, we handle payroll setup for new employers and can manage the ongoing remittances and year-end filing so you do not have to track the deadlines yourself. Reach out through our contact page if you are hiring your first employee and want payroll set up correctly from the start.