Canadian tax withholding can be complex to manage effectively, especially for South African companies that aren’t familiar with the foreign tax code. South African companies may simply try to take the easy way out and not withhold Canadian taxes for their employees—but this can lead to a wealth of trouble. Canada is strict about its taxes and will penalize foreign companies that do not comply with the laws. If you’re operating in Canada or you employ Canadian workers, you must understand Canadian tax withholding and take the appropriate steps to ensuring that your workers are paid correctly and legally. To help you, here are three things South African companies should know about Canadian tax withholding.
It’s Not Just about the Income Tax
What must be deducted from your employees’ pay cheques every pay period isn’t just federal and provincial income tax. Canadian Pension Plan (CPP) and Employment Insurance (EI) deductions must also be withheld. Although there is no limit to the amount you withhold for income taxes—it depends on the total amount earned per employee—there are maximums for CPP and EI, both for each pay period and for the full year.
As the employer, it is your responsibility to keep track of the contributions, as well as to know the exceptions and the maximums to ensure you’re withholding the correct amounts. If you withhold too much, you must refund it to the employee. If you underpay to the government, you are the one who must take responsibility for the amount owed. Therefore, it’s clear that South African companies must know the rules and regulations that come with Canadian withholding, not only when it comes to income taxes, but also to Canadian Pension Plan and Employment Insurance contributions as well.
The Government Is Stringent about Deadlines
When it comes to Canadian tax withholding there’s no question about it: the government is stringent. You must make your payments to the Canada Revenue Agency by the required deadlines or face interest penalties and other costs. What’s more, these deadlines can change every year and they’re not the same for every company—they depend on the nature of your business and your average withholding amounts for the year. And the CRA won’t take any excuses as to why your payment is late. It’s as simple as that. It’s your responsibility to know the deadlines and send your payments in a timely manner.
There’s Help If You Need It
Getting to know the ins and outs of Canadian tax withholding takes time, effort, resources, and dedication. To ensure you’re paying your Canadian employees legally, you must fully understand the tax code and your obligations as an employer, which includes understanding the nuances of CPP and EI and keeping up to date on the Canada Revenue Agency’s strict deadlines. But you don’t have to do it alone—you can ask for help.
When you employ the services of an Employer of Record, the EOR legally takes over as the employer of your workers, pays them directly, and manages all of the Canadian tax withholding work so you can avoid the hassle. With an EOR, you eliminate the risk of being non-compliant so you can avoid paying hefty fines and penalties that come with tax and payroll errors. Employers of Record help international businesses, including South African companies, stay in compliance so they can rest easy.