Last updated in September 2023.
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Canada is known for its high standard of living, quality education and healthcare systems, natural beauty, and cultural diversity.
It has one of the largest economies globally, with a diverse range of industries including natural resources, manufacturing, technology, and services. It is a member of the G7 group of nations.
Payroll in Canada – 2023 Updates
Here are some of the most important changes in Canada for tax season 2023:
- New tax-filing deadline – Monday, May 1st
- Changes on the federal income tax brackets - In 2023, Canada's federal tax brackets increased by 6.3% to account for inflation. Here are the tax brackets for 2023, as outlined by the CRA: Any Canadians earning less than $53,359 in taxable income per year (but above the basic personal amount of $15,000) will be subject to the base 15% tax rate.
- Increase on the basic personal amount – increased to $15,000 for the 2023 taxation year.
- Registered retirement savings plans (RRSPs) - The contribution limit increased to $29,210 for 2022.
- The Employment Insurance (EI) and Canada Pension Plan (CPP) rates - The EI rate has increased from 1.58% to 1.63% based on maximum annual insurable earnings of $61,500.
Read the full breakdown of the updated deadline and changes to the tax code on the Forbes website.
Canadian Payroll – Basic Facts
The official currency is the Canadian dollar (CAD), and Canada does not consider digital currencies to be legal tender.
Opening a branch office is one way for a company to set up a business in Canada, however, the foreign headquarters carries full liability for the branch’s operations. That is why most of the organizations that are prepared to operate in Canada for a long-term, can incorporate at either the federal or provincial level.
Generally, employment law protects only workers who are properly classified as employees. Employees are entitled to various employee benefits under employment standards legislation, such as overtime pay, public holiday pay and protected leaves of absence.
Payroll in Canada works by having employers pay their employees for work they've done. The employers register for a payroll account with the CRA and then pay their employees. As an employer, businesses must withhold payroll remittances (CPP, EI and income tax) from their employees' pay.
Employers in Canada are responsible for withholding income and social taxes and providing workplace protections for employees. Some taxes are collected by provincial and territorial governments. Quebec administers its own social insurance programs apart from the rest of Canada.
Employers are also required to complete a Record of Employment for all workers who:
- have quit
- were laid off
- had their employment terminated
- have seven consecutive calendar days without insurable earnings.
Foreign employers are obligated to establish payroll-deduction accounts with the Canada Revenue Agency (CRA) and withhold social contributions for domestic workers, though foreign workers may not be entitled to the same social benefits, however, foreign employees are entitled to the same workplace rights as locals.
The tax year in Canada runs from January 1st to December 31st.
Tax and Social Security Considerations
Corporate Tax
The general corporate tax rate on business income - the net tax rate after the general tax reduction, is 15%. For Canadian-Controlled Private Corporations (CCPCs)s eligible Small Business Deduction (SBD), the net tax rate 9%.
Income Tax
Income taxes are deducted at source by employers during each pay period.
The 2023 federal income tax brackets and tax rates are:
- Up to $50,197 of income is taxed at 15%
- Income between $50,197 and $100,392 is taxed at 20.5%
- Income between $100,392 and $155,625 is taxed at 26%
- Income between $155,625 and $221,708 is taxed at 29%
- Above $221,708, income is taxed at 33%
Social Tax
Canada has an extensive social security system that covers benefits for disability, death, family allowances, medical care, old age, sickness, and unemployment. These programs are mainly funded through wage and salary deductions and employer contributions.
An employee’s responsibility is comprised of two parts: Canada Pension Plan (CPP) (or the Quebec Pension Plan for employees working in Quebec) and Employment Insurance (EI). Contributions made by an employee to CPP, QPP or EI are creditable against that individual’s federal and provincial income tax liability. The credits are calculated at the lowest federal and provincial tax rate.
The Social Security Rate in Canada stands at 14.38%. Social security rate for companies is 7.66% and for employees it is 6.72%.
Canada Pension Plan (CPP) / Quebec Pension Plan (QPP)
CPP contributions are required to be deducted from an individual’s remuneration if the individual is employed in Canada, aged between age 17 and 71, and receiving pensionable earnings. The employer of record is responsible for withholding and remitting the individual portion and a matching employer portion to the CRA, or to the MRQ regarding QPP contributions.
As of 2023, if you earn less than the earnings ceiling, there will be no further rate increases. The CPP contribution rate will stay at 5.95% for employers and employees, and at 11.9% for people who are self-employed, unless their earnings rise higher than the earnings ceiling.
Employment insurance (EI)
EI is a federal payroll tax required to be deducted from an individual’s remuneration if the individual is employed in Canada and is receiving insurable employment earnings.
Individuals residing in Quebec contribute a reduced El amount. However, they must also contribute to the Quebec Parental Insurance Premium plan (QPIP).
Sales Tax
There are three types of sales taxes in Canada: the provincial sales tax (PST), the federal goods and services tax (GST) and the harmonized sales tax (HST).
The GST is a value-added tax that applies to most goods and services in Canada. The GST rate is 5%.
Ontario is one of the provinces in Canada that charges a Harmonized Sales Tax (HST) of 13%. The HST is applied to most goods and services, although there are some categories that are exempt or rebated from the HST.
Tax Withholding
- Dividends – 25%
- Interest – 25%
- Royalties – 25%
- Branch remittance tax – 25%
- Technical service fees – Certain technical service fees may be subject to a 25% withholding tax.
- Other – Certain rental payments and management fees may be subject to a 25% withholding tax.
Other Taxes
- Payroll tax – Here is a chart showing both federal and provincial/territorial payroll deductions for 2023.
For verifying your payroll deductions, you can use the Payroll Deductions Online Calculator (PDOC).
- Real property tax – Municipal authorities levy taxes on the occupation of real property. The tax is deductible in calculating the corporate tax liability.
- Employer health tax - The employer health tax is an annual tax on an employer's B.C. remuneration paid to employees and former employees in a calendar year beginning on January 1, 2019. Read more here.
Compensation and Benefits
Minimum wage
Canada does not have a national minimum wage. Each of Canada’s 10 provinces and 3 territories has a standard hourly minimum wage rate. See the full list by providence on the Retail Council of Canada website.
Working hours
The standard hours of work in Canada are 8 hours per working day, or 40 hours in a week. The maximum time permitted for work per week is 48 hours.
Overtime
Hours worked beyond the standard hours of work in a day or week are considered overtime and must be paid. Each province and territory have an individual overtime rate.
Public Holidays
There are 9 public holidays in Canada, however, employees may be entitled to paid time off on several provincial or territorial holidays. See the full list with holidays in Canada in 2023.
Leave
With the sole exception of Quebec, all of Canada is covered by the Employment Insurance plan. The amount received is calculated based on a person’s previous 52 weeks of employment, so long as those earnings were consistent. This includes not only wages but also bonuses, tips, and even commissions.
• Non-Quebec Canadians:
– Paid leave: The basic entitlement is 2 weeks of vacation for every completed “year of employment”. After 5 consecutive years of employment with the same employer, the entitlement increases to 3 weeks of vacation. After 10 completed years, employees are entitled to 4 weeks of vacation.
– Sick leave: Full-time employees are entitled to a total of 15 weeks of sickness benefits under EI. Employees are entitled to a total of 26 weeks of compassionate care leave benefits under EI. The maximum leave of absence for compassionate care allowed is 28 weeks. Compassionate care leave is reserved for caretaking duties which fall on employees for family or close friends in need. Canadian employers must grant employees time off for jury duty but are not required to pay wages during this time.
– Family caregiver benefit: Allows up to 35 weeks of caregiver benefits to provide care or support to a critically ill or injured child.
– Maternity leave: EI maternity benefits are offered to biological mothers, including surrogate mothers, who cannot work because they are pregnant or have recently given birth. A maximum of 15 weeks of EI maternity benefits is available. The 15 weeks can start as early as 12 weeks before the expected date of birth, and can end as late as 17 weeks after the actual date of birth.
– Parental leave: Parental benefits are paid for a maximum of 35 shared weeks plus 5 weeks of “daddy days”; paid within a year of the birth or adoption of the child.
– Murdered and missing children: Employees are entitled to up to 104 weeks’ leave to cope with the death or disappearance of their child.
• Quebec Canadians:
– Maternity Leave: Pregnant employees are entitled to a maternity leave without pay for up to 18‑consecutive weeks. This leave can be taken before and/or after the birth.
The basic rate used to calculate maternity and standard parental benefits is 55% of average insurable weekly earnings, up to a maximum amount.
– Paternity Leave: An employee is entitled to 5 weeks of continuous paternity leave, without pay, when their child is born. This paternity leave can begin on the week of birth, at the earliest, and may not end later than 78 weeks after the week of birth.
Termination of employment
Employers must give individual employees written notice of an intent to terminate their employment at least 2 weeks before the intended termination date. Instead of providing the written notice, employers can pay employees 2 weeks of wages. Read more for severance pay here.
Workers’ compensation
Employers are required to secure workers’ compensation coverage so that their workers can have access to replacement income in the event of injury or illness in the course of employment. Learn more on the Government of Canada website.
Record keeping
Employers must retain all records of employment and supporting documents for a period of 6 years from the end of the most recently filed tax year.
Foreign Workers in Canada
In general, business visitors to Canada do not require a visa to visit Canada for less than 6 months. After 6 months, foreign workers can apply for a work permit, which are valid for up to 4 years.
Canadian employers are responsible for requesting a labor market impact assessment (LMIA) from the Canadian government before hiring foreign workers.
Visas
Citizens and permanent residents of the US and many European countries do not need a visa to visit, transit, or do business in Canada. They still must possess a valid travel document (a passport) and have a valid reason for being in Canada. The North American Free Trade Agreement (NAFTA) allows US and Mexican nationals freedom in activities such as research, marketing, and general service, which other nationals cannot participate in without a permit.
Business visitors in Canada are different from temporary workers and are expected to stay for less than 6 months and not earn money in Canada. Foreign workers generally must have a job with a Canadian employer before moving to Canada and must be in Canada to meet a specific labor need.
The Temporary Foreign Worker Program (TFWP) allows Canadian employers to hire foreign workers to fill temporary positions during skill shortages.
Taxes
You are a non-resident for tax purposes if you:
- normally, customarily, or routinely live in another country and are not considered a resident of Canada
• do not have significant residential ties in Canada
– you live outside Canada throughout the tax year
– you stay in Canada for less than 183 days in the tax year
As a non-resident of Canada, you pay tax on income you receive from sources in Canada. The type of tax you pay and the requirement to file an income tax return depend on the type of income you receive. Learn more on the website of the Government of Canada.
Canadian residents in the US
Canada has both an income tax treaty and a social tax totalization agreement with the US. Canadians must meet general visa requirements and be certified to be employed in the United States. They are eligible to work in the US under:
– TN visas – They are valid for 3 years and were created under the North American Free Trade Agreements between Canada, US, and Mexico.
– H-2B visas – They cover labor or services of a temporary or seasonal nature in occupations other than agriculture or registered nursing. The number of H-2B visas issued each year is limited by the US law.
Canadians are subject to US employment-based taxation on income earned in the US, unless they can claim an exemption under certain tax treaty provisions, or they work under specific visa types that exempt earnings from taxes. State and local taxation of Canadian workers also can apply.
Treaties
Canada has a special relationship with the United States and Mexico under the North American Free Trade Agreement (NAFTA). The country has entered into more than 90 income tax treaties with countries around the world, including an income tax treaty with the United States. Learn more on the website of the Government of Canada.
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