Source deductions

Source deductions are the amounts an employer withholds from its employees’ paychecks (taxes, retirement contributions, and insurance premiums) and then pays to the government. The employer adds its own share to these amounts. These amounts do not belong to the employer; it holds them “in trust” for the government before remitting them.

At a glance

Amounts withheld from pay: taxes, QPP (Quebec Pension Plan), QPIP (Quebec Parental Insurance), EI (Employment Insurance)
Paid to the Canada Revenue Agency (CRA) and Revenu Québec on a fixed date
The employer adds its employer’s share (its own employer contributions, including the HSF, the Health Services Fund)
Used to complete the year-end forms: the T4 (federal) and RL-1 (Quebec) for each employee
The payment schedule depends on your payroll: for a small employer, source deductions are generally made on the 15th of the month following payroll.

Why it matters

In practical terms: on a $1,000 paycheck, the employee doesn’t actually receive $1,000; a portion is withheld (taxes, QPP, QPIP, employment insurance), and it’s up to you, the employer, to remit it to the governments. This money isn’t yours: it’s held “in trust” for the government, much like if you were holding onto someone else’s wallet. That’s why unpaid source deductions result in some of the harshest penalties and interest charges in Canada, and it’s one of the first things the tax authorities check. Bankeo connects you, for free, with a vetted accountant or CPA (Chartered Professional Accountant) who calculates withholdings, makes payments on time, and prepares year-end tax forms. We’re here to support you every step of the way.

The numbers speak for themselves: The Canada Revenue Agency imposes a penalty of 3% to 10% of the overdue amount depending on the number of days (and up to 20% for repeat offenders), in addition to interest. It’s no coincidence that the decision to pay you a salary or a dividend It changes everything: salary triggers source deductions, but dividends do not. Since the GST and QST Once collected, these withholdings are money set aside for the government, never income to be spent. The rules for calculation and due dates are published by the Canada Revenue Agency. When managed properly, this expense disappears from your books: Bankeo connects you, free of charge, with an accountant who handles it and supports you every step of the way.

Frequently asked questions

What exactly are source deductions?

When you pay an employee, you don’t give them their entire gross salary: you withhold a portion (taxes, QPP, the Quebec Pension Plan, QPIP, parental insurance, and employment insurance) and pay these amounts to the government on their behalf. These are withholding taxes.

How often do I need to pay source deductions?

It depends on the size of your payroll (the total amount of wages paid). For most small businesses, it’s once a month; very large employers make payments more frequently. The CRA will tell you how often you need to make payments.

How can I be sure I never make a mistake with my source deductions?

Since this money is held “in trust” for the government, an error or delay can be costly. Bankeo connects you, for free, with a vetted accountant or CPA who calculates withholdings, makes payments on time, and prepares year-end forms (T4, RL-1). We’re here to support you every step of the way.