Source deductions — how employers withhold income tax, CPP, and EI
Withholding
Section 153 requires employers to withhold income tax (as well as CPP premiums and EI premiums) from employment income and remit it to CRA on behalf of employees.
Plain-language explanation
Section 153 is the statutory basis for the payroll withholding system. Every employer paying salary, wages, bonuses, or commissions must deduct and remit: 1. Federal and provincial income tax 2. Canada Pension Plan premiums (or QPP in Quebec) 3. Employment Insurance premiums
How withholding is calculated: CRA provides payroll deduction tables (T4032) for each province. Employers use these — or payroll software — to determine the withholding based on the employee's expected annual income and any TD1 credits claimed.
TD1 forms: Employees complete federal Form TD1 (and provincial TD1) to declare their non-refundable credit amounts. The more credits claimed, the lower the withholding. Employees who expect additional income (like RRSP withdrawals or rental income) should consider increasing withholding or paying instalments to avoid a large balance at year-end.
Remittance schedule: - New remitters (<$25K/year payroll): due the 15th of the following month - Regular remitters ($25K–$100K): due the 15th of the following month - Accelerated (≥$100K/quarter): due within 3 business days of the payroll - Large employers (≥$1M/month): same-day or next-day
Penalties for failure to remit: Failure to remit withheld amounts is a serious offence. The employer — and potentially officers and directors — are personally liable for unremitted amounts. Penalties range from 3% to 20% depending on timing.
Example
Greenfield Bakery pays its 5 employees every two weeks. Total monthly payroll taxes (income tax + CPP + EI): ~$8,000. As a regular remitter, Greenfield must remit to CRA by the 15th of the month following each payroll.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Lowest federal tax rate reduced from 15% to 14%, effective July 1, 2025. CRA updated payroll deduction tables effective July 1, 2025 to reflect the mid-year rate change, requiring employers to update their withholding calculations for the second half of 2025.
Before
15% lowest federal bracket; tables based on 15% first bracket
After
Blended 14.5% rate for all of 2025 payroll; 14% from 2026
Common questions
What is a TD1 form? +
The "Personal Tax Credits Return" — a form employees give their employer to declare non-refundable credit amounts (BPA, spousal amount, disability, etc.). The employer uses it to determine how much income tax to withhold. Update your TD1 when your circumstances change (e.g., you acquire an eligible disability, get married, or your spouse starts work).
Do I need to pay income tax instalments if I also have self-employment income? +
If your balance owing at year-end (tax not withheld by your employer plus any self-employment income tax) exceeds $3,000 in the current or either of the two preceding years, you must pay quarterly instalments. CRA will send instalment reminders.
Who is liable if an employer doesn't remit payroll deductions? +
The corporation, and potentially its directors personally, under s.227.1. Directors can be held jointly and severally liable for unremitted source deductions if they did not exercise due diligence to prevent the failure.
Key terms
Related sections
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 153. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.