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  5. > Payroll Deductions: Where Does It All Go?

Payroll Deductions: Where Does It All Go?

Reading your pay slip can be confusing. The first thing you’ll probably notice is that your take-home pay, or net pay, is usually quite a bit less than your gross pay. This is because your pay will usually have deductions for items such as:

  • income tax
  • Employment Insurance (EI)
  • Canada Pension Plan (CPP) or Quebec Pension Plan (QPP)

Depending on your employer, there may be other deductions such as:

  • payments you make for employee benefits
  • your contributions to a company savings or pension plan
  • union or other professional dues

Your gross pay may include commissions, bonuses, and vacation or overtime pay if you are eligible for these.

Your net pay is the amount of money you get after taxes and other payroll deductions. This will be the amount deposited to your bank account or written on your pay cheque.

Most pay slips will show your gross pay, itemized deductions and net pay.

Income tax

A big part of your payroll deductions will go toward paying income tax. Your employer takes money out of your gross pay to send directly to the federal government and your provincial or territorial government. In Quebec, the provincial tax will be listed as a separate deduction on your pay slip. Elsewhere in Canada, there will be a single combined deduction for provincial/territorial and federal income tax.

When you start a new job, you’ll need to fill out a form called the TD1 Personal Tax Credits Return. Your employer uses this form to determine how much money must be deducted from your regular pay cheque for taxes, EI, and CPP or QPP.

The amount of money withheld is based on the non-refundable tax credits to which you may be entitled. Most people can claim the basic personal amount but you may also be entitled to claim the spousal amount, the amount for dependent children, and tuition and education amounts. It is important to fill the form out correctly so that you don’t pay more than you have to.

Each year, your employer must send you a T4 Statement of Remuneration Paid.The T4 slip gives you a summary of your pay and all the deductions taken from it in the previous year.

You should also consider filling out a T1213 Request to Reduce Tax Deductions at Source form if you have other significant tax-deductible expenses, such as RRSP contributions or child care expenses. By reducing your withholdings at source, you increase your net take-home pay with every paycheque.

Visit www.cra.gc.ca for more information.

Employment Insurance

Employment Insurance (EI) is a federal program that provides temporary financial assistance to unemployed Canadians who have lost their jobs under certain circumstances.

Employment Insurance is funded by employees and employers. Your employer will deduct your portion of EI premiums from your pay. If you lose your job, you may be entitled to receive financial assistance from the program for a certain time.

Find out more about Employment Insurance from Service Canada.

Canada Pension Plan or Quebec Pension Plan

The Canada Pension Plan (CPP) is a retirement plan administered by the federal government. Participation is mandatory for employees and employers in all provinces and territories. The one exception is Quebec, which has the Quebec Pension Plan (QPP).

The CPP and QPP provide basic pension benefits when you retire. Generally, the amount you receive when you retire depends on the amount you paid into the plan. In the event of your death, the plan pays benefits to your survivors. To learn more about the CPP, visit the Service Canada website. For more information about the QPP, visit the Régie des rentes website.

Registered Retirement Savings Plan

You may be able to make Registered Retirement Savings Plan (RRSP) contributions through your employer. If so, this deduction will be shown on your pay slip.

Employer-sponsored pension fund

Some employers offer employees a pension when they retire. If you belong to your employer’s pension plan, your pension contribution will show as a deduction on your pay slip.

Employee savings plan

Your employer may offer a savings plan. The plan may include investment choices, such as mutual funds or stock in the company. If you belong to an employee savings plan, your savings plan contribution will show as a deduction on your pay slip.

Union dues

If you belong to a union, the fee you pay to be a member may be deducted from your pay.



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Date Modified:
2013-01-31