5.8 Income Tax Deductions
Income tax must be deducted from your employees' remuneration. There is no age limit for deducting income tax.
Among the types of remuneration from which you must withhold income tax at source are
- salary and wages, including retroactive payments and wages in lieu of termination notice,
- payments under supplementary unemployment benefit plans (e.g., parental leave top-up),
- fees and commissions,
- special payments such as bonuses and retroactive pay,
- retiring allowances (starting in 2011 for the 2010 taxation year) and
- benefits and allowances for some items such as medical, educational, automobiles, and lodging.
To help you determine how much to deduct, the employee has to complete one of the personal tax credit returns, which is most often the TD1 form outlined in Chapter 5.6. Once completed, the TD1 will give the employee a claim amount. You use this amount to determine the claim code and calculate the income tax deduction by using either a manual calculation method or the payroll deduction tables. For more information on these two methods see the CRA website section on Methods of Calculating Deductions.
Determining whether benefits and allowances are taxable can be tricky.
The CRA’s payroll deduction tables are updated as tax rates change and there are tables for the most common pay periods being: weekly, biweekly, semi-monthly and monthly.
There are supplementary payroll deduction tables available on the CRA website for hourly, daily or 10, 13 or 22 pay periods a year. The payroll deduction tables have information to help you calculate the amount you must withhold for federal and provincial income tax.