Canada Inches Toward Real-Time Payroll Reporting

Canada’s system of federal and subnational income taxes, social taxes, and subnational payroll taxes may be in line to benefit from real-time payroll data submissions in the future, an executive from Canada’s National Payroll Institute said May 15.

Basic forms required from employees for employers to calculate tax correctly include Form TD1, Personal Tax Credits Return, for federal and provincial income tax, said Steven Van Alstine, PLP, the NPI’s vice president of professional standards and education. Quebec’s largely parallel tax system uses Form TP-1015.3-V, Source Deductions Return, he said. The forms are updated every year, but employees do not have to file new ones unless their circumstances change, he said.

Employees must also provide their Social Insurance Number card or a letter that shows their SIN, Van Alstine said. SINs that start with the digit 9 have expiration dates and are issued to employees who require work permits, Van Alstine said, while SINs also never start with 0 or 8.

Van Alstine said that all payroll systems default to the applicable federal and provincial basic personal amounts unless an employee can claim higher amounts using Form TD1 or Form TP-1015.3-V. He recommended that employers send out communications each year reminding employees to fill out new Forms TD1 if needed and that their net pay will likely decrease at the start of the year as social taxes are again withheld.

Outside of Quebec, all federal and provincial income taxes are remitted to the Canada Revenue Agency, Van Alstine said. Revenu Quebec collects its provincial income tax, contributions to the Quebec Pension Plan and Quebec Parental Insurance Plan, and its provincial payroll taxes. The QPP and the federal Canada Pension Plan are similar and have the same taxable earnings thresholds but different contribution rates, he said.

Subnational taxes on payroll are paid by employers and usually follow a basic structure of a threshold payroll amount below which the tax is not paid, followed by more thresholds increasing the rates for larger businesses, Van Alstine said.

Van Alstine spoke at the 2025 Payroll Congress in Kissimmee, Fla.

Federal and Quebec withholding methods include those for regular wages, bonuses, and lump sum payments, Van Alstine said. The lump sum method is used for payments such as severance pay as well as nonemployee payments such as pensions or death benefits. Van Alstine cautioned that when an employee who receives severance pay taxed according to the lump sum method takes another job before the end of the year, they may end up with a large tax liability. “The organization was fully within their right[s] to use lump sum, but you need to warn the employee that there could be a tax liability depending on their personal income situation,” he said.

The end-of-year slips reporting wages paid to an employee are the CRA’s T4 slip, Statement of Remuneration Paid, and the T4A slip, Statement of Pension, Retirement, Annuity, and Other Income, Van Alstine said. The Quebec equivalents are the RL-1 slip, Employment and Other Income, and the RL-2 slip, Retirement and Annuity Income. Quebec’s slips are officially only in French, Van Alstine said. Revenu Quebec provides English explanations of the forms’ boxes and instructions.

Employment Insurance

For Employment Insurance, the federally-run unemployment and leave benefits program, employers must track employees’ insurable hours and earnings and fill out and issue Records of Employment to employees besides just withholding and paying contributions, Van Alstine said. ROEs must be issued when an employee has an interruption of earnings for seven consecutive days, whether through termination or layoff, or when they are on sick, maternity, parental, compassionate care, or family caregiver leaves and their wages fall below 60% of their regular amount. The form must be filed with Service Canada, which administers EI, and given to the employee, even if they do not intend to apply for EI benefits.

“The whole purpose of the ROE is to give the government real-time payroll data so they can determine who is and who is not entitled to EI benefits and what they’re going to receive,” Van Alstine said.

Van Alstine mentioned that during the Covid-19 pandemic, the government had difficulty determining how much employees had earned and relied on applicants to Covid-19 benefit programs to self-report, resulting in billions of Canadian dollars of overpaid benefits. Employees were not required to submit an ROE when applying for some of the benefits, unlike the normal practice for EI benefits. Van Alstine argued that the overpayments could have been prevented with a real-time payroll system. “It was a great argument for us moving to this system,” he said.

While EI is a federal program, lower contribution rates apply in Quebec because its QPIP system provides some of the same benefits, Van Alstine said. Employers that have their own plans providing leave benefits like EI can also apply for contribution reductions from Service Canada, he said. He added that reductions are usually established until something changes with the employer’s program, but Service Canada also sends out its own reminders to covered employers.

Regarding real-time payroll reporting, Van Alstine said that the “we haven’t moved the needle very much,” but the incumbent Liberals’ recent election victory means the government is still “committed to” introducing a real-time system with a five-year timeline. The NPI worked with the UK’s Chartered Institute of Payroll Professionals and Australia’s The Association for Payroll Specialists, both of which have real-time systems in their countries, Van Alstine said. He also mentioned that the NPI appears to be on a path to eventually eliminating the ROE through a real-time system.