Source deductions
Source deductions are the income tax, CPP/QPP, EI and QPIP amounts an employer withholds from pay and remits to the CRA and Revenu Québec, together with the employer portions.
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Key facts
| Category | Payroll |
|---|---|
| Also known as | payroll remittances, withholding |
| Withheld | Income tax, CPP or QPP, employment insurance, and QPIP in Québec |
| Remitted to | The CRA; Revenu Québec for the provincial portions |
| Frequency | Quarterly, monthly or accelerated, set by average remittance size |
| Year-end filing | T4 and, in Québec, Relevé 1 |
| Authority | Canada Revenue Agency; Revenu Québec |
What it means in practice
Québec employers remit to two authorities: federal income tax and EI to the CRA, and Québec income tax, QPP, QPIP and the health services fund to Revenu Québec. Remittance frequency depends on the size of your payroll. Most new employers are regular remitters, due by the 15th of the month after the month of payment; larger payrolls remit more often, sometimes several times a month. Source deductions are held in trust for the government, which is why they attract some of the harshest penalties in the tax system — and why directors can be held personally liable for amounts a corporation fails to remit.
Why the penalties are harsher here
Source deductions are money withheld from someone else's pay and held in trust. That is why the penalty regime is stricter than for ordinary tax debt: a late remittance attracts a penalty on the amount, rising with how late it is, and a repeat failure in the same year attracts a higher rate. The trust characterisation also carries personal exposure. Directors can be held personally liable for unremitted source deductions, and that liability survives the corporation's insolvency in a way that ordinary corporate debt does not. Remittance frequency is set by the CRA from your average remittance and can change year to year. A business that grows into a more frequent schedule and keeps paying on the old one is late every period without realising it.
FAQ
Do I withhold on payments to a subcontractor?
I am the only employee of my own corporation. Does this apply?
Need this applied to your situation?
A definition only gets you so far. Talk to a Montréal CPA about what this means for your return — in English or French.