Source deductions, also known as statutory deductions, are those items mandated by the federal government to be deducted from an employee's payroll (at source).
In calculating payroll, amounts need to be deducted for Canada Pension Plan (CPP), Employment Insurance (EI) and Income Tax. These source deductions must be remitted to Canada Revenue Agency (CRA) on a
timetable determined by the size of the company's payroll.
CPP is deducted from an employee's pay at the rate of 4.95% of an employee's wages above the basic exemption amount to a maximum annual deduction in 2015 of $2,479.95. The basic exemption amount for various pay periods is attached
here. The employer must add to the amount deducted from the employee an equal amount of CPP (matching). Prior year limits are attached
here.
EI is deducted from an employee's pay at the rate of 1.88% (non-Quebec rate) in 2015 on each dollar earned to a yearly maximum of $930.60. The employer "matches" the deduction made from the employee at a rate of $1.40 for each dollar deducted from the employees. Thus, if the employer deducts $100.00 in EI in a period, they must add to their remittance for the period the amount of $140.00. The rates and yearly maximum's for prior years is provided
here.
The amount deducted for Income tax is determined with reference to the employee's level of personal deductions and income level. Employees with higher levels of Non-Refundable Tax Credits are required to complete a TD1 and the respective TD1 for their province to reduce the level of tax deductions.