Guidance on Registering for Payroll and Remitting Source Deductions

There comes a time for many small business owners when they decide that they need to hire employees.  This is usually an excellent sign as it means a) the business is growing and b) the small business owner has learned to delegate.  It also means that additional paperwork needs to be filled out and additional taxes need to be paid.  The simplest option when deciding to augment your workforce is to have the new worker invoice the business, based on hours worked or some other formula.  Unfortunately, there are very specific rules as to who qualifies as a self employed contractor.  Essentially, if your have someone that works full time, has little flexibility with respect to the hours that they work and you provide the tools such as a desk/office, computer etc, then there is a good chance that the tax authorities will classify them as an employee.  In this case, where your worker is clearly an employee, you must register for payroll, pay them a salary and submit regular, periodic payroll reports and payments to the Canada Revenue Agency (CRA).  As usual, if you live in Quebec, you must submit to Revenue Quebec (MRQ) as well. 

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how do you register for a federal Payroll Account?

To create a federal payroll account with CRA, whether you have a sole proprietorship, partnership or a corporation, you will first have to ensure that you have a business number.  The options below allow you to also register for a business number:

1. ONLINE: Register for a business number and payroll number online using this link. This will take you through an interview process where you submit the requested information. If you already have a business number, you would provide this during the interview and simply complete the payroll section.

2. MAIL: Register by completing the the Request for a business number form and mailing it to your tax centre .  This form also allows you to register for payroll at the same time, which is included in Part C on the form.  If you already have a business number you would complete the payroll deductions form where you must include your Business Number, your business activity and other information per the form above. Similar to registering online, the form requires you to indicate how many employees you intend to have over the next 12 months, how often you will pay them and a few other questions relating to the business itself.  If you are not sure, simply use your best estimate . There is no penalty for changing the number of employees or estimated revenues etc.

3. PHONE: Register by phone by calling 1-800-959-5525.

Note that the online option is probably the fastest way to have your application processed.

how do you register for a quebec Payroll Account?

If you operate a business in Quebec you are required to register both federally (see above) and in Quebec. Similar to the federal registration there are three options for registering a payroll number with Revenue Quebec:

1. ONLINE: If you already have a business number, you should register for a Clic Sequr (My Business Account) with Revenue Quebec. Once you have completed your registration you would log in to your business account where you can then apply for a payroll account directly in the “source deductions and contributions section”. Simply click on this option and follow the instructions.

2. MAIL OR FAX: The application for registration, form LM-1-V will need to be filled out for the sections that you are applying which would “deductions at source” in this case.  You can also apply for a business number at the same time, if you haven’t already done so. Note that you will need to enter your Quebec Enterprise Number (NEQ) and your Business Number obtained from the CRA. The LM-1-V allows the business to get a Quebec identification number which is required for all tax files.

3. PHONE: You can also call Revenue Quebec to obtain your payroll number.

How To pay Remittances (deductions at source) to Revenue Canada ?

Once you have registered for a payroll account with CRA you are ready to go ahead and make remittances. Note that employers must register for a payroll account before the “first remittance due date”.  The remittance due date is on the 15th of the month following the month in which you first pay your employee. Eg. if you issue paycheques to your employees in August, the payroll remittance (Deductions at source filings) are due by September 15th. The exception to this is when you have received a notice from CRA allowing you to file quarterly or annually. This information that tells you your filing due dates is also usually available in CRA My Business Account

Amounts to be deducted from employees paycheques and remitted to the CRA include Employment Insurance (EI), Canada Pension Plan (CPP)and Federal Income Taxes.  There is also an employer contribution component of EI and CPP.

There are several options for setting up your payroll, paying employees and calculating deductions at source. If you choose to submit the remittances to CRA yourself rather than outsourcing it to a third party, you have a few options:

1. ONLINE USING BUSINESS BANKING:

   Most Canadian banks eg. RBC, TD, CIBC, BMO etc have a business banking section where you can set up and submit payroll remittances online which is one of the simplest ways to file and pay the deductions at source. Once you have registered for the service, you would “add” the Federal DAS and Quebec (if applicable) DAS forms to the forms that are filed regularly. These are then to be completed based on your remittance frequency by entering the information for each field on the online form ( it replaces the paper form entirely) The remittance is then taken directly from your bank account. Note that the filing date deadline for payroll remittances will be one business day before the due date since the banks take one business day to process the payment.

2. ONLINE USING CRA MY PAYMENT

   You may also complete the DAS (payroll remittance) form using My Payment where , similar to online banking, you would enter your account number, number of employees and amount payable and then make payment using interac, visa or mastecard (debit only)

3. MAIL

   You can complete the form that you receive in the mail from CRA for monthly deductions at source and enclose a cheque with it. If for some reason you don’t have the payroll form from CRA (which can happen in the first month after registration or if you misplace it), you can create a document which lists the payroll account number, number of employees and the amount of the remittance and submit it. If paying by cheque, you should mail it a few days in advance to ensure it is received by the due date and thereby avoid penalties.

4. OUTSOURCE YOUR PAYROLL:

   I often recommend outsourcing your payroll to a third party, which can be done for a nominal fee and help you avoid late payments, interest and penalties. Many payroll services will take care of remittances to CRA on your behalf. Please refer to my post on using different types of payroll services in Canada.

   You can also make payment, along with a payment remittance from CRA, in person at a bank or the post office.

what are penalties for late filing payroll deductions to cRA?

It is very important to ensure that you pay your remittances on time. Failure to file the source deductions return and make payment will result penalties as follows:

• 3% if the amount is one to three days late;

• 5% if it is four or five days late;

• 7% if it is six or seven days late; and

• 10% if it is more than seven days late or if no amount is remitted.

Interest will also be charged on late payments.

There are a variety of other penalties that may apply.

How To pay remittances (deductions at source) TO Revenue Quebec?

Amounts to be remitted to Revenue Quebec include Quebec Pension Plan (QPP), Quebec Parental Insurance Plan (QPIP), Quebec Health Services Fund (QHSF) and Quebec Income Taxes.  Quebec employers are also required to pay CNESST and CNT.  Note that QPP and QPIP include an employer portion, while QHSF, CNESST and CNT are all payable 100% by the employer. RQ will also advise you of whether your filing frequency is monthly or quarterly. CNT is only payable once a year at the year end when you file your RL1 summary.

Below are remittance and payment options for RQ:

1. ONLINE BANKING:

   Most banks will allow you to set up the Quebec DAS forms and pay online through the business banking service.

   OR

2. RQ CLIC SEQUR (MY BUSINESS ACCOUNT):

   You can submit your DAS by going to your business account with RQ and completing the source deduction form by filling out the appropriate fields. Once complete, RQ will provide you with a “payment code”. You can then go to your business banking account , add this payment type and simply enter the code to make payment.

   OR

3. MAIL:

   RQ will also send you a form for monthly deductions at source. This will need to be completed and a cheque enclosed with it for the amount payable. If you don’t have the payroll form from RQ , you can create a document which lists the following fields and amounts owing for each:

   • Period to which payroll relates

   • income tax withheld

   • QPP (employee and employer)

   • QPIP(employee and employer)

   • QHSF (employer only)

   • CNESST (employer only)

   If paying by cheque, similar to CRA, you should mail it a few days in advance to ensure it is received by the due date and thereby avoid penalties.

Revenue Quebec has a comprehensive guide on source deductions and contributions

Once you decide to hire employees, there are certain steps to follow to ensure that you are paying your employees and revenue agencies correctly. Although these are a bit time consuming to set up, once you have established a routine, they can be fairly easy to follow on a regular basis.

If you have further questions about payroll or anything else relating to small business accounting and tax, feel free to reach out for a personalized consultation where we can discuss your specific needs and I can give you guidance.

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