Source deductions are the income tax, CPP and EI amounts an employer withholds from employees' pay and remits to the CRA on their behalf.
When you pay an employee, you must withhold income tax, Canada Pension Plan contributions and Employment Insurance premiums at source and remit them to the CRA, together with the employer's matching CPP and EI. The employee receives the net pay; the withheld amounts never belong to the employer.
Because they are held in trust for the Crown, source deductions carry the harshest compliance regime in the tax system. Late remittance penalties run up to 10%, or 20% for repeat failures, and directors are personally liable for amounts a corporation fails to remit, incorporation offers no shield here.
From an employee's $4,000 salary you withhold income tax, CPP and EI totalling, say, $1,000, and pay them $3,000. You then remit the $1,000 plus your employer CPP and EI share to the CRA by the 15th of the next month.
Our certified accounting firm handles this for businesses and individuals across Canada, at fixed fees with no surprises.
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