Canadian Payroll Tax Overview

This article provides guidance on key Canadian payroll tax requirements and calculations supported in Avionte for 2025.

Canadian Pension Plan (CPP)

The Canadian Pension Plan is a mandatory retirement savings program that requires contributions from both employees and employers on earned income throughout the calendar year.

Standard CPP Contributions

Annual Limits (2025):

• Year's Maximum Pensionable Earnings (YMPE): $71,300
• Annual Basic Exemption: $3,500.00
• Weekly Basic Exemption: $67.30 ($3,500 ÷ 52 weeks)

Contribution Rates:

• Standard rate: 5.95% (all provinces except Quebec)
  • Quebec rate: 6.40% - Please Note: Quebec payroll processing is not currently supported in Avionte

Calculation Example:

For an employee earning $2,000 per week:

1. Calculate annual wages: $2,000 × 52 = $104,000
2. Subtract annual exemption: $104,000 - $3,500 = $100,500
3. Apply CPP rate: $100,500 × 5.95% = $5,979.75
4. Convert to weekly deduction: $5,979.75 ÷ 52 = $115.00

Canadian Pension Plan Second Additional (CPP2)

CPP2 is a secondary contribution tier that applies to earnings between the first and second earnings ceilings.

Annual Limits:

• Year's Additional Maximum Pensionable Earnings (YAMPE): $81,200.00
• Contribution rate: 4.0% (both employee and employer)
• Applies to earnings between $71,300 and $81,200

Calculation: CPP2 contributions are calculated only on the portion of earnings that exceed the YMPE ($71,300) up to the YAMPE ($81,200).

Employment Insurance (EI)

Employment Insurance provides temporary income support for unemployed workers. Both employees and employers contribute to this program

Annual Limits:

• Maximum Insurable Earnings: $65,700.00

Contribution Rates:

Calculation Example:

For an employee with gross wages of $1,000:

• Employee EI contribution: $1,000 × 1.64% = $16.40
• Employer EI contribution: $16.40 × 1.4 = $22.96

Note: EI contributions are calculated on gross wages up to the maximum insurable earnings threshold.

Employer Health Tax

The Employer Health Tax is a provincial payroll tax that funds public healthcare services. It is currently applicable in Ontario and British Columbia, with each province maintaining distinct regulations.

Ontario EHT

Exemption Threshold: $1,000,000 annual payroll
Tax Rate: 0.98% on payroll exceeding the exemption threshold

Employers with total annual payroll under $1,000,000 are exempt from EHT.

How to Calculate:

1. Determine your tax rate based on your total Ontario payroll before exemption
2. Subtract the $1,000,000 exemption from your total payroll (if eligible)
3. Multiply the taxable amount by your tax rate

Calculation Example: An employer with total Ontario payroll of $1,800,000

• Tax rate used: 1.95% (because total payroll is over $400,000)
• Taxable payroll: $1,800,000 - $1,000,000 = $800,000
• EHT owing: $800,000 × 1.95% = $15,600

Important Notes:

• Employers with total annual payroll under $1,000,000 are exempt from EHT
• No exemption is available if payroll exceeds $5,000,000 (unless a registered charity)
• Associated employers must share the exemption

British Columbia EHT

Exemption Threshold: $1,000,000 annual payroll
Tax Rate: 2.925% on payroll exceeding the exemption threshold

Calculation Example

Example 1: Employer with $1,200,000 B.C. payroll

Taxable amount: $1,200,000 - $1,000,000 = $200,000

Tax rate: 5.85%

EHT owing: $200,000 × 5.85% = $11,700

Example 2: Employer with $2,000,000 B.C. payroll

Taxable amount: $2,000,000 (full amount, no exemption at this level)

Tax rate: 1.95%

EHT owing: $2,000,000 × 1.95% = $39,000

Important Notes:

• The $1,000,000 exemption increased from $500,000 starting in 2024
• Employers between $1M-$1.5M payroll use the "notch rate" of 5.85%
• Employers over $1.5M use the standard rate of 1.95% on full payroll
• Associated employers must share the exemption

Compliance Requirements

Employers subject to EHT must:

• Track total annual payroll accurately
• File returns according to provincial schedules
• Remit payments as required by provincial regulations

For detailed filing requirements and deadlines, consult your provincial government's guidelines.

Canadian Sales Tax - GST/HST

GST/HST for businesses - Canada.ca

The Goods and Services Tax (GST) and Harmonized Sales Tax (HST) are consumption taxes that may apply to certain payroll-related transactions.

Configuration in Avionte

Sales tax rates are configured within Admin Tools → Sales Tax. Each province has its own GST/HST rate structure:

• GST: Federal tax applied in provinces without HST
• HST: Combined federal and provincial tax used in participating provinces

Tax rates must be configured independently for each province where your organization operates.

Provincial Variations

Because tax rates vary by province and may change over time, verify current rates with the Canada Revenue Agency (CRA) or your provincial tax authority when setting up or updating your tax configuration.

Additional Resources

For the most current tax rates, thresholds, and compliance requirements:

• Canada Revenue Agency (CRA): www.canada.ca/en/revenue-agency
• Provincial tax authorities for province-specific regulations

Important Notes

• This article reflects 2025 tax year rates and thresholds
• Tax rates and limits are subject to annual changes
• Always consult with tax professionals or relevant government authorities to ensure compliance with current regulations
• Quebec has its own Quebec Pension Plan (QPP) and Quebec Parental Insurance Plan (QPIP) with different rates

Last Updated: October 2025