Source deductions

Source deductions are the income tax, CPP and EI you must take off an employee's pay and send to the CRA, before the employee is paid.

Also called: payroll deductions, statutory deductions, withholdings, payroll withholding

What source deductions means

Source deductions are amounts the law requires you to take off an employee's pay before you pay them, and then send to the government. They are called source deductions because they are taken at the source of the income: your payroll.

Outside Quebec, the three main source deductions are income tax (federal and provincial combined), Canada Pension Plan (CPP) contributions and Employment Insurance (EI) premiums. For CPP and EI you also add an employer share. Income tax has no employer share.

Once you have deducted the money, you must send it to the Canada Revenue Agency (CRA) by the due date. Late or missing payments bring penalties, so treat the deducted amounts as money you are holding for the government, not as business cash.

How it works

Each pay day, start with the employee's gross pay, including any taxable benefits. Work out CPP and EI on the pensionable and insurable amounts, and income tax based on the employee's TD1 form and the CRA's payroll deductions tables (T4032) or your payroll software. The pay statement shows each deduction, and the employee receives the rest as net pay.

Add your employer share: an equal amount of CPP (and CPP2, if it applies) and 1.4 times the employee's EI premium. For 2026, the CPP rate is 5.95% each on earnings from $3,500 to $74,600, and the EI rate is $1.63 per $100 for employees and $2.28 for employers, up to $68,900 of insurable earnings.

Remit the total (employee deductions plus your share) to the CRA on your payroll account by your remittance due date. For most new small employers that is the 15th of the month after you paid the employees. The CRA's late remittance penalty starts at 3% for 1 to 3 days late and rises to 10% for more than 7 days late.

At year end, report each employee's earnings and deductions on a T4 slip and file the T4 Summary. Other deductions such as union dues, benefit premiums or a garnishment are not source deductions in this sense; they follow their own rules.

Is it the same in every province?

Source deductions are set federally and work the same way across Canada, except that provincial income tax differs and is built into the CRA tables for each province. Quebec has its own provincial payroll system and lower EI premiums, so employers with staff in Quebec should also check Revenu Québec's rules.

Example: One pay for a new hire

Olivia runs a 3-person accounting office in Saskatoon. Her new receptionist, Ty, earns $1,600.00 every two weeks. Olivia's payroll software uses Ty's TD1 forms and the 2026 Saskatchewan tables to work out the income tax, and applies CPP at 5.95% (after the per-pay share of the $3,500 exemption) and EI at 1.63%.

The EI part is $26.08 ($1,600.00 times 1.63%), and Olivia adds an employer EI premium of $36.51 (1.4 times). She also matches Ty's CPP. On the 15th of the next month she remits all of it to the CRA.

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Questions about source deductions

What are the main source deductions in Canada?

Income tax, CPP contributions and EI premiums. In Quebec the pension deduction is the QPP instead of CPP, EI premiums are lower, and Revenu Québec has its own requirements.

Do employers pay part of the source deductions?

Yes, for CPP and EI. You match the employee's CPP and pay 1.4 times their EI premium. There is no employer share of income tax.

When are source deductions due?

It depends on your remitter type. Regular remitters pay by the 15th of the month after the pay date; larger employers remit more often, and some small employers can remit quarterly.

Official sources

General information for Canadian employers, not legal advice. Rules differ by province and territory and change over time, so check with your provincial employment standards office (or the federal Labour Program if you are federally regulated) before you rely on it. See employment standards by province.

Checked against official sources on 4 November 2026.