Gross pay is an employee's total earnings before any deductions, the starting figure from which income tax, CPP and EI are withheld to arrive at net pay.
Gross pay is the full amount an employee earns in a pay period, wages, salary, overtime, bonuses and taxable benefits, before anything is withheld. It is the base for calculating source deductions and the employer's matching CPP and EI, and it is the figure that appears as remuneration on the T4.
The gap between gross and net pay (what lands in the employee's account) is the total of income tax, CPP and EI withheld. Employers budget for more than gross pay, because they also owe the employer share of CPP and EI and any provincial payroll tax on top.
An employee's gross pay is $5,000 a month. After roughly $1,000 in income tax, CPP and EI is withheld, their net pay is about $4,000, while the employer's total cost exceeds $5,000 once its CPP and EI share is added.
Primary source
- Income Tax Act, s. 153 Withholding
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Filing is required once tax is owed, and also in several situations regardless of income, including selling property, repaying benefits, splitting pension income, or receiving a request to file from the CRA. Below the basic personal amount most people owe nothing, yet filing still pays: the Canada Child Benefit, the GST/HST credit and provincial credits are all calculated from a filed return. Check the basic personal amount for the year you are filing.
A tax credit reduces the tax you owe, whereas a deduction reduces the income the tax is calculated on. Non-refundable credits, such as the basic personal amount or tuition, can bring tax down to nil but pay nothing beyond that. Refundable credits, such as the GST/HST credit, are paid out even when no tax is owing. Almost every credit is claimed on the return, so filing is what releases the money.
Different deductions, not different rules. Withholding follows the TD1 forms you filed, so a colleague claiming more credits, tuition or a disability amount has less tax taken off. Other causes are a different province of employment, a second job where each employer applies the basic personal amount, taxable benefits added to your pay, a higher salary reaching the next bracket, and pay-period timing. CPP and EI also stop at their annual maximums, which higher earners reach sooner.
A personal return is the T1: identification pages, then pages that total income, subtract deductions to reach taxable income, apply federal and provincial credits, and finish with a balance owing or a refund. Behind it sit schedules and forms for specific items, such as a self-employment statement or a capital gains schedule, plus the slips supporting each figure. The notice of assessment the CRA issues afterwards is a separate document, not the return itself.
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Reviewed and fact-checked by Udit Gupta
Ex Big 4 — Ernst & Young, Deloitte · International & cross-border tax specialist · CPA Canada (In-Depth Tax Program) · Chartered accountant, ICAI & MIA
Udit Gupta has over 15 years of experience helping corporations and business owners with corporate structuring, corporate tax filing, bookkeeping, payroll, GST/HST, cross-border tax and CRA representation. Big 4 trained at Ernst & Young and Deloitte, and qualified as a chartered accountant in India and again in Malaysia, he founded his accounting practice in 2014 to serve entrepreneurs, startups and non-resident business owners across Canada. View full member bio.
The Institute of Chartered Accountants of India — member 521458 · Malaysian Institute of Accountants — member CA 44667 · Ex Big 4: Ernst & Young, Deloitte · CPA Canada (In-Depth Tax Program), completed 19 Dec 2023 · In-Depth GST/HST Part I, 12 Jul 2022 · Part II, 5 Jul 2023
Editorial policy. Every page is researched against primary sources — the Income Tax Act, CRA publications and CPA Canada guidance — and every rate or threshold is stated with the tax year it applies to.
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