Operating a Canadian business means in most cases, being an agent of the CRA for the collection and withholding of certain amounts. Most businesses will end up remitting to the CRA, GST or HST collected from clients. It is the Excise Tax Act which governs GST / HST and what products services are taxable or exempt from taxation, and each province either has the HST or the GST. Those provinces who have harmonized their provincial taxes with the federal GST pay HST on applicable products and services. In all cases it is up to you to collect and safeguard and remit these taxes to the CRA.
Similarly, businesses with staff on payroll will end up withholding source deductions to remit to the CRA. In both cases the business is acting as the CRA’s agent and trustee, and if those “trust” amounts are not remitted to the CRA there are serious ramifications which penetrate the corporate shield and attach directly to the directors of the corporation.
Source Deductions
Employers in Canada are obligated to deduct CPP/QPP and EI premium contributions as well as personal income tax from their employees’ pay.
What is actually received by the employee is their gross pay less all of these deductions. And the employer is required to set these deductions aside so that they can be remitted to the CRA periodically. The employer is also required to file certain paperwork including T4 summaries.
What ends of happening invariably, is that businesses which are in trouble often times don’t actually remit the source deductions (or HST collected) to the CRA and instead use them to pay rent or their staff or suppliers. That is when the directors get themselves into hot water.
Managing a payroll account can be tricky business and I recommend that all new business owners consider an outsourced payroll management company for three reasons:
- Payroll companies save a lot of time spent in preparing paperwork and doing calculations,
- When payroll is outsourced it is going to avoid errors on your part, and
- Payroll companies deduct money from a business’ account each pay period and automatically remit amounts to the CRA. This avoids any temptation to use the funds for other than their intended purpose.
Canada Pension Plan (CPP) and Quebec Pension Plan (QPP)
While a business is required to withhold employee contributions, they are also required to pay the employer’s portion. These amounts fund the pension plan system for retirees. Payroll companies automatically calculate the appropriate CPP/QPP contributions.
Employment Insurance (EI)
Similar to the CPP/QPP amounts that employers are required to withhold, they must also withhold EI amounts, which are remitted to the CRA. Again, Payroll companies take care of all the nitty-gritty and are definitely recommended – if you can’t tell.
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