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Employing Canadian Workers? Our Business Taxes Can Be Quite the Pain!

Posted by Stacey Duggan

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Aug 7, 2014 8:35:00 AM

Business and Payroll taxes can be a pain for U.S. based companiesEmploying Canadian workers and deducting the correct Canadian payroll taxes from their paycheques can be difficult if you’re an American or foreign company outside of North America. We’ve compiled a list of Canadian taxes a company employing Canadian workers should be aware of, if they are not engaging with an Employer of Record service.

Canadian Business Taxes

All Canadian businesses must file a corporate tax return with the Canadian government. This corporate tax return is due within the six months after the end of the company’s fiscal year.

If you are engaging with Canadian companies for the sale of your product or service you need to be aware of the sales tax for the province you are doing business in. For goods and services sold in Canada, every company must charge the applicable provincial sales tax. The same is true in the reverse, if you purchase goods and services in Canada, you will be charged the sales tax. You are then required to reconcile these debits and credits to pay or report to the Canada Revenue Agency. Every province has a different rate and the remittance schedule can vary as well based on company size. In Ontario, it is called the HST (Harmonized Sales Tax) and the rate charged is currently 13%, in Alberta that rate is 5% for their GST (Goods and Services Tax). For a full list of HST/GST rates by province, please visit the Canada Revenue Agency’s website.

Another tax to be aware of as a foreign company is the possibility of the 15% withholding tax. If a U.S. or foreign company chooses not to register a Canadian business presence but does engage in a sales transaction with a company in Canada, that company must withhold and remit 15% of any payments for services rendered in Canada.

Canadian Payroll Taxes

Some taxes are consistent for all employers across Canada such as the Canada Pension Plan (CPP), Employment Insurance (EI) and Worker’s Compensation.  These taxes may be consistently seen across all provinces and territories but the rate that they are charged can vary.

Other taxes are province or territory specific. For example, in Ontario employers must pay the Employer Health Tax (EHT) and in Quebec there are three additional taxes over and above the federal ones. Please visit the Canada Revenue Agency’s website for further information on provincial payroll taxes and rates.

If you have not engaged an Employer of Record here in Canada and have successfully registered your business, enrolled for the various government accounts and are up to date on your taxation responsibilities, you may be ready to hire your first employee.

If you’d prefer to have an Employer of Record handle the complexities of Canadian employment law, contact The Payroll Edge today and we’ll take care of the workforce compliance issues for you! 

7 Signs It's Time to Outsource Payroll

Topics: Payroll Tax, Payroll Tax in Canada, Employee Payroll Deductions, CRA Payroll Tax, Payroll Deductions, Calculating Taxes in Canada, Employee Payroll Tax, Small Businesses Payroll

A Canadian Payroll Class May Not be The Right Choice

Posted by Stacey Duggan

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Jul 29, 2014 8:30:00 AM

Canadian Payroll Class FrustrationWhen it comes to understanding Canadian payroll, your first instinct may be to enrol in a payroll class to help your payroll and HR department learn the specifics.  For those companies outside of Canada, this search is in effort to understand foreign payroll compliance and is often handed over to someone hesitant to learn a new set of laws when they are already comfortable with their own. 

Canadian rules and regulations when it comes to paying an employee can be vastly different, especially when compared to a country such as the United States.  These differences can exert a level of frustration on the payroll or HR person who is already schooled in one set of legislative compliance.

When it comes to choosing a Canadian payroll class ensure that part of the curriculum covers the following:

  • Federal payroll taxes including the Canada Pension Plan, Employment Insurance and Worker’s Compensation.
  • The additional provincial payroll taxes as they vary from province to province (ensure the class covers the province that most interests you as many payroll classes will avoid Quebec due to its complicated nature)
  • Employee and Employer deductions and the remittance schedules assigned to each tax account.
  • Employment standards when it comes to overtime, statutory holiday pay and vacation pay and a section on how these vary from province to province as well.

Not only should the above information be covered in a Canadian payroll class but the payroll and HR department need to be aware of the over 1700 rules and regulations when it comes to the Employment Standards Act which also varies from province to province.

Ensure that the Canadian payroll class you register your in house payroll person includes information on:

  • Health & Safety and a Return to Work program should your worker be injured.
  • Termination and pay in lieu of notice.  Note: there is no ‘At Will’ employment in Canada.
  • How to properly compose an employment contract ensuring that all clauses meet employment minimums.

What are the chances that not only will the Canadian payroll class offer all of the above, but that your payroll and HR person taking the class will retain all of the information?  How will they keep up to date on the ever-evolving employment regulations and changes to tax law?  Most likely the Canadian payroll class will offer nothing more than an overview of the functions and processes of paying an employee

What outsourcing your Canadian payroll to The Payroll Edge will bring:

  • Complete compliance when it comes to calculating payroll taxation.
  • Correct, on time remittances with all government bodies in every province.
  • Employment standards expertise ensuring you meet your due diligence.
  • Certified experts who understand the law and keep up to date on its changes.
  • The freedom to focus on your business.

Canadian payroll processing doesn’t have to be complicated and you don’t have to take a new field of study to get it done. The Payroll Edge is a Canadian based payroll processing company specializing in helping American and foreign companies expand their workforce into Canada by acting as the employer of record (EOR), a similar service to a PEO in the U.S.  We also take care of small businesses in Canada who don’t have the time or expertise for payroll.

The Payroll Edge offers seamless workforce expansion into Canada without the daunting task of understanding foreign employment compliance. Contact us today for more information on how we can help your business.

12 Things an American Company Looking to Hire a Worker in Canada Needs to Know

Topics: Canadian Payroll Deductions, Employee Payroll Deductions, Payroll Tax Tips, U.S. Business operating in Canada, Paying a Canadian, Calculating Taxes in Canada, Canadian payroll class

American Companies: 5 Easy Steps to Calculating Taxes in Canada

Posted by Stacey Duggan

|

Jun 11, 2014 1:45:00 PM

american companies 5 easy steps to calculating taxes in canadaAmerican companies paying employees in Canada will need to learn how to calculate Canadian taxes. Even if the business operates from inside of the US, they’ll still need to calculate taxes for any of their Canadian employees. Making timely and accurate tax filings with the Canadian authorities is essential for avoiding fines and penalties. The steps for calculating taxes in Canada are relatively straightforward.

Calculate Pay

To start with, you’ll need a complete record of the employee’s taxable earnings. This may include overtime, holiday pay, gratuities, or certain paid expenses or benefits. The definition of “pay” can vary from one province to the next, so you’ll need to be versed in the applicable tax laws for each work location. Once you know exactly what to count as taxable income, you’re ready to add up the gross income for each employee.

Verify Status

Withholdings can vary depending on the employee’s status, type of employment, location, age, and hours worked. Withholdings for social programs like the Canadian Pension Plan and Employment insurance have an annual maximum, so you need to monitor when employees have reached their yearly limit. Withholdings can also change from year to year, and it’s up to you to keep up with any changes.

Calculate Employer Remittances

Like the US, American companies in Canada are required to contribute to certain government programs. The employer is expected to match a certain percentage of employee contributions to programs like the CPP and EI. Like employee contributions, annual employer contributions are capped. Make sure you don’t overpay, as you may not be eligible for a refund, or underpay, which could result in fines and penalties. Required contributions can vary from year to year, and province to province.

Remit Withholdings

Once you’ve accurately calculated all of the withholdings from your employee’s pay, you must remit them, along with your contributions, to the CRA and other authorities prior to the due date. For some American companies, this will occur annually, while other companies will have to make more frequent filings. Failure to make regular, timely remittances can result in fines, penalties, and even criminal charges.

Reporting

Each employee needs to be provided with a T4, T4A, or other tax information slip. These slips typically must be received by the employee by the end of February, though that can change depending on which slip is used. These slips show what the employee earned, any commissions earned as well as the taxes that were withheld for that person. These slips, similar to a W2 in the US, are necessary for the employee to complete their personal taxes, so it’s important to get them out on time.

Straightforward isn’t always Simple

While these steps look pretty straightforward, that doesn’t mean that they’ll be easy to follow. Canadian payroll laws are complex, and constantly changing. If you’re not comfortable committing the time and effort to keep up with those changes, you may want to consider a professional payroll service. A payroll service can handle calculating taxes in Canada, so you and your staff don’t have to.

Canadian Payroll Tax Deduction Calculator

Topics: American Companies, Calculating Taxes in Canada, American Business in Canada

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