Economical Contractor Payment Setup for Canadian Businesses

EI benefits are taxable income. Service Canada withholds income tax before each payment reaches you, and the total benefits plus the tax withheld appear on your T4E for the year. That withholding follows a basic calculation rather than your full marginal rate, so people who also worked during the year often end up with a balance owing at filing. Asking Service Canada to withhold more, or setting money aside yourself, avoids a surprise. Higher-income claimants can also have to repay part of their regular benefits through the return.

By the last day of February following the calendar year the pay relates to. The same date applies to giving employees their copy and to filing the T4 information return with the CRA, and filing late brings a penalty that scales with the number of slips. Filed slips usually appear in CRA My Account within a few weeks. If yours has not arrived, ask your employer first, then fall back on My Account or your own pay records.

Usually because the pay for that period is low enough that the basic personal amount covers it. Payroll annualises each cheque, so part-time or irregular hours can produce zero income tax while CPP and EI still come off. Other causes are a TD1 claiming large credits, a claim of exemption from withholding, or being paid as a contractor rather than an employee, in which case nothing is withheld and the tax is yours to set aside and remit.

Yes. Tips and gratuities are taxable income in Canada, whether paid in cash, added to a card payment or shared through a tip pool. Amounts your employer controls and distributes usually run through payroll and appear on your T4 with CPP and EI withheld. Tips you receive directly are still reportable even though nobody reports them for you, so keep a daily record. Leaving them out is a common reason a server's return is reassessed.

Yes. Tips are income and belong on your T1, whether they come as cash from a customer, on a card, or out of a pooled arrangement. Tips the employer controls and pays out are run through payroll, appear on your T4 and have CPP and EI withheld. Tips handed to you directly are not on any slip, so you report the total yourself. A daily record makes that figure defensible.

Usually yes. Severance, retiring allowances, bonuses, back pay, commuted pensions and RRSP withdrawals are taxable in the year received, and the payer withholds at a flat lump-sum rate that may be higher or lower than your real marginal rate, so a refund or balance can appear at filing. A qualifying retroactive lump sum covering earlier years can be spread back over them on request. Amounts transferred directly to an RRSP defer the tax.

Call the CRA's individual enquiries line and ask to have the account unlocked; the number is on the Contact the Canada Revenue Agency page. Accounts lock after repeated failed sign-ins, and the CRA also revokes access itself when it suspects credentials were compromised. The agent verifies you with your social insurance number, date of birth, address and a figure from a recently filed return, so have a copy of it in front of you.

Use your marginal rate for decisions about the next dollar: an RRSP contribution, a bonus, extra self-employed work, or realising a capital gain. It is the combined federal and provincial rate on income in your top bracket. Use your effective, or average, rate to understand your overall burden, which is total tax divided by total income. Federal brackets for 2026 start at 14% and rise through 20.5%, 26% and 29% to 33%.

GST/HST applies to wholesale sales the same as retail, since Canada has no resale exemption certificate. A registered buyer charges tax on its own sales and recovers the tax it paid on inventory as an input tax credit, so the tax washes out through the chain and only the final consumer bears it. Provincial sales tax works differently: in British Columbia, Saskatchewan and Manitoba, goods bought for resale are generally exempt if you give the vendor your registration number.

Retiring voluntarily does not normally create an entitlement to statutory severance, which employment standards legislation ties to dismissal or termination without cause; your provincial or federal standards and your own employment contract decide the point. Where an employer does pay something on retirement it is usually a retiring allowance, taxable in the year received with tax withheld at source, and part of it may qualify for direct transfer to an RRSP based on qualifying earlier service.

The Universal Child Care Benefit was a monthly federal payment for children that counted as taxable income for the person who received it. It no longer exists. It was replaced by the Canada Child Benefit, which is not taxable and is not reported on your return at all. If you are correcting an old return from the years the UCCB was paid, the amount still belongs in income for that year; for current years there is nothing to report.

Deductions reduce taxable income; credits reduce the tax calculated on it. The usual deductions are RRSP contributions, child care expenses, union and professional dues, employment expenses your employer certifies, eligible moving expenses, deductible spousal support payments (child support is not deductible), and losses from a business or rental. If the same large deductions repeat each year, Form T1213 asks the CRA to reduce the tax withheld from your pay; the CRA publishes no processing standard for it, so file well before the year it applies to.