When an incorporated IT contractor decides to pay themselves salary, the corporation does not simply move money from the corporate account to the personal account. It becomes an employer. A separate payroll account must be opened with CRA before the first remittance. Source deductions must be calculated and withheld from each salary payment. Those deductions must be remitted to CRA on a schedule that does not align with the corporate tax or GST/HST calendars. At the end of the calendar year, a T4 slip must be filed to report the employment income. None of these obligations are complicated for a corporation with a single employee, but each runs independently of the other compliance tracks and has its own set of consequences for missing deadlines.
The decision to pay salary at all, and how much to pay, belongs to the year-end planning conversation. The mechanics described here apply once that decision is made. The year-end review guide covers how salary fits into the compensation framework alongside dividends, shareholder loan clearance, and corporate tax reduction.
The Payroll Account
A corporation’s business number issued by CRA has multiple program accounts attached to it. The corporate income tax account carries the suffix RC, the GST/HST account carries RT, and the payroll deductions account carries RP. The payroll account must be opened with CRA before the first payroll remittance is made.
Most incorporated IT contractors do not have a payroll account open when they first incorporate. The account is only needed if and when salary is paid. If a contractor has been operating through dividends and draws only, the payroll account may never have been set up. Before processing any salary payment, confirming whether the RP account exists and is active is the first step.
Opening the payroll account online through CRA’s My Business Account takes a few minutes once access is established. It can also be done by calling CRA’s business line. CRA requires the payroll account to be open before the first remittance due date; in practice, setting it up before the first pay date avoids avoidable allocation problems. Remitting under a business number without an active RP account causes processing problems that take time to resolve.
Who Is the Employee
An owner-manager who receives salary from their corporation is an employee for payroll purposes. This is true regardless of the shareholder’s ownership percentage. A contractor who owns 100% of the corporation and receives salary from it is both the employer and the employee for the purposes of the Income Tax Act payroll rules.
The corporation, acting through its director, authorizes the salary payment. The corporation withholds source deductions from that payment. The corporation remits the deductions to CRA under its RP account. At year-end, the corporation issues a T4 slip to the shareholder-employee. The shareholder-employee reports the employment income on their T1.
The fact that the shareholder controls the corporation does not eliminate these obligations. A salary payment without proper source deduction withholding and remittance is a payroll compliance failure, not a different category of payment.
Source Deductions: What Gets Withheld
Three types of source deductions are relevant to owner-managers: income tax, Canada Pension Plan contributions, and Employment Insurance premiums. The rules for each differ in important ways.
Income tax. Federal and provincial income tax must be withheld from every salary payment based on the expected annual income and the province of employment. The corporation uses the applicable payroll deduction tables or CRA’s online calculator to determine the correct withholding amount for each pay period. The withholding obligation applies to regular salary payments, bonuses, and any other employment income. If the payment is a bonus or other irregular amount, CRA’s bonus or irregular-payment method is used rather than treating the amount as an ordinary recurring pay period.
Canada Pension Plan (CPP). Employees in pensionable employment generally contribute to CPP on pensionable employment earnings from after the month they turn 18 until the month before they turn 70, even if they are already receiving a CPP or QPP retirement pension. An employee who is 65 to 69 and receiving a CPP or QPP retirement pension can elect to stop CPP deductions by giving the employer Form CPT30. As the employer, the corporation also contributes a matching employer portion equal to the employee’s contribution. For a single-person corporation where the shareholder is the only employee, the corporation effectively contributes both the employee portion (withheld from salary) and the employer portion (an additional cost to the corporation above the gross salary amount). The employer CPP contribution is a deductible expense for the corporation.
Starting in 2024, a second tier of CPP contributions (CPP2) applies on earnings between the first and second earnings ceilings. The CPP2 contributions are withheld and remitted in the same way as the original CPP contributions, but at different rates and on a different tranche of earnings. The total CPP-related withholding and employer matching obligation is therefore higher than it was before 2024 for employees earning above the Year’s Maximum Pensionable Earnings.
Employment Insurance. This is where owner-managers differ from regular employees. Under paragraph 5(2)(b) of the Employment Insurance Act, employment is excluded from insurable employment when the employee controls more than 40% of the voting shares of the corporation. A contractor who controls more than 40% of their corporation is employed in excluded employment for EI purposes. The corporation does not withhold EI premiums from their salary and does not remit employer EI contributions for them. They cannot collect regular EI benefits based on that excluded employment.
This exclusion applies to the owner-manager specifically. If the corporation has other employees who do not meet the control threshold, those employees remain in insurable employment and EI withholding applies to their pay. A corporation with a single owner-manager employee has no EI obligations at all.
Calculating Source Deductions
CRA’s Payroll Deductions Online Calculator is the most practical tool for a single-employee corporation outside Quebec. The calculator takes the province of employment, the pay period type, the gross pay amount, and any applicable credits or exemptions, and produces the withholding amounts for income tax and CPP for that pay period. For Quebec payroll, Revenu Québec’s WebRAS is used for Quebec provincial income tax, QPP, QPIP, and employer contributions. For most owner-managers, the calculation is run once per pay cycle.
The calculator reflects the applicable federal and provincial tax rates and the CPP thresholds for the current year. CRA updates the calculator at the beginning of each calendar year to reflect any changes to rates, ceilings, or credits. A calculation done in January 2024 used different CPP figures than the same calculation done in January 2025.
The corporation uses these figures to determine: (1) how much to withhold from the gross salary amount before depositing the net pay into the shareholder’s personal account, and (2) how much the corporation itself must add for the employer CPP match.
Remittance Schedule and Deadlines
Once source deductions are withheld, they must be remitted to CRA under the RP account. The remittance schedule depends on the corporation’s average monthly withholding amount from two calendar years prior.
Most single-owner payroll accounts are regular remitters unless CRA has assigned quarterly-remitter status. Regular remitters send source deductions to CRA by the 15th of the month following the month in which the deductions were withheld. Income tax, CPP employee contributions, and CPP employer contributions withheld or owed in January are remitted by February 15.
New small employers can remit quarterly if their monthly withholding amount is less than $1,000 and they maintain a perfect compliance record. Existing small employers may qualify for quarterly remittances once the payroll account has been open for at least 12 months, the relevant average monthly withholding amount is less than $3,000, and the employer has maintained a perfect compliance record. Quarterly remitters send deductions for the first quarter (January through March) by April 15, second quarter by July 15, third quarter by October 15, and fourth quarter by January 15 of the following year. CRA notifies existing employers in writing when they qualify for quarterly remitting.
Remittances are made online through CRA’s My Business Account, through a financial institution, or by other approved methods. Remittances should reference the RP account number to avoid misapplication.
Late remittances attract penalties. CRA generally applies the penalty when deducted amounts over $500 are not remitted or are remitted late; smaller amounts can still be penalized where the failure was knowing or grossly negligent. A remittance that is one to three days late may incur a 3% penalty. Four to five days late is 5%. Six to seven days late is 7%. Eight or more days late, or no remittance, is 10%. A 20% penalty can apply if this is the second or later assessed failure in the same calendar year and the failure was made knowingly or in circumstances of gross negligence. These percentages apply to the amount that was remitted late, not the total amount owed for the year. A single missed monthly remittance on a modest salary can still produce a penalty that is disproportionate to the error.
Year-End: The T4 Slip
The T4 slip reports employment income paid to an employee during the calendar year. For a corporation with a single owner-manager employee, one T4 is prepared and filed alongside a T4 Summary.
T4 slips must be filed with CRA and provided to employees by the last day of February following the calendar year to which they relate. The ordinary deadline for 2025 T4 slips was February 28, 2026; because that date fell on a Saturday, CRA’s next-business-day rule made March 2, 2026 the on-time filing or postmark date. Corporations that file more than five information returns of the same type must file electronically. A single-employee corporation filing one T4 may file on paper, though electronic filing through CRA’s web services is generally easier and faster.
Key T4 boxes for an owner-manager receiving salary:
- Box 14 reports total employment income, which is the gross salary paid during the calendar year
- Box 16 reports the employee’s CPP contributions withheld
- Box 16A reports CPP2 contributions withheld, starting with 2024
- Box 22 reports the income tax withheld from the salary payments
- Box 26 reports CPP pensionable earnings, which may differ from Box 14 if there are non-pensionable portions
Box 17 (QPP contributions) is used for Quebec employees and is discussed in the Quebec section below.
If the corporation paid any taxable benefits to the shareholder-employee, those amounts appear in additional boxes and are also included in employment income. Common taxable benefits in a closely-held corporation include personal-use vehicles, personal expenses paid by the corporation, and group benefits premiums where applicable. These amounts must be reported in both Box 14 and the relevant benefit box so the T4 correctly reflects all employment income.
The T4 Summary consolidates the totals from all T4 slips filed and confirms that the amounts remitted to CRA during the year match what is being reported. If the corporation remitted more than the T4 Summary indicates was owed, the overpayment can be refunded or applied to the next account period. A mismatch between the year’s remittances and the T4 Summary will generate a CRA follow-up.
Bonus Payments
A year-end bonus is employment income and carries the same source deduction requirements as regular salary. The withholding calculation for a bonus or irregular amount uses CRA’s bonus or irregular-payments method for income tax and CPP. It often produces more withholding than treating the same amount as an ordinary pay period, but the actual result depends on year-to-date pay, credits, pay frequency, and the regular salary pattern.
A bonus declared before the corporate fiscal year-end but not yet paid at that date falls under the subsection 78(4) rule: the deduction is allowed in the year it was declared only if the bonus is paid within 180 days of the corporate fiscal year-end. A bonus accrued at a December 31 year-end must be paid by June 29 of the following year to be deductible in the closed fiscal year.
For the bonus to appear on the T4, it must be paid or credited in the calendar year. A bonus declared in December 2025 and paid in January 2026 appears on the 2026 T4 and creates RRSP room for 2027, not 2026. If the timing objective is to accelerate RRSP room creation, the bonus must actually be paid before December 31.
How Payroll Connects to the Year-End Review
The corporate deduction calendar runs on the corporation’s fiscal year, while payroll remittances and T4 reporting run on monthly, quarterly, and calendar-year deadlines. These timelines do not always align, particularly when the corporation has a non-December fiscal year-end.
The compensation decision made in the year-end review determines the total salary amount for the year. That amount is then processed through payroll: source deductions are calculated, withholding is remitted, and a T4 is issued. The shareholder loan account is cleared by the salary paid or properly set off against it. The T2 reflects the salary as a deductible corporate expense, reducing the corporation’s taxable income.
A salary declared at year-end that is not actually paid, and not set off against the shareholder loan before the 180-day unpaid-remuneration deadline, loses its deductibility in the year it was declared. The payroll mechanics need to be executed in sequence with the planning decision, not left as an open item after the T2 is filed.
Quebec Perspective
Quebec-based incorporated IT contractors have payroll obligations to both CRA and Revenu Québec. The two sets of obligations run in parallel.
QPP instead of CPP. Employees whose province of employment is Quebec contribute to the Quebec Pension Plan (QPP) rather than CPP. The QPP contribution rates and earnings ceilings are set by Retraite Québec and follow a similar structure to CPP, including a QPP2 tier that mirrors the CPP2 enhancement for earnings above the Year’s Maximum Pensionable Earnings. Revenu Québec administers QPP remittances. The T4 carries QPP employee contributions in Box 17 rather than Box 16, and QPP2 contributions in Box 17A rather than Box 16A.
QPIP. The Quebec Parental Insurance Plan (QPIP) requires both employee and employer premium contributions on insurable earnings. Unlike the federal EI exclusion for shareholders who control more than 40% of a corporation, QPIP has its own rules around insurable employment that should be reviewed specifically. Owner-managers with majority control cannot assume that the federal EI exclusion also eliminates their QPIP obligation. QPIP premiums generally apply to eligible salary or wages paid in Quebec, and the analysis for owner-managers under the QPIP legislation differs from the federal EI analysis. The federal T4 also uses Box 55 for employee PPIP premiums and Box 56 for PPIP insurable earnings where QPIP premiums were deducted.
RL-1 slip. The Quebec equivalent of the T4 is the RL-1 slip. The RL-1 reports employment income, QPP contributions, QPIP premiums, and provincial income tax withheld. It is filed with Revenu Québec and provided to the employee by the same deadline as the T4: the last day of February following the calendar year. For a Quebec employer, both a T4 and an RL-1 are required for each employee.
Health Services Fund (HSF). Quebec employers pay a contribution to the Health Services Fund based on total remuneration subject to the contribution. The contribution rate depends on total payroll and sector of activity. This is an employer-only contribution, not a deduction from the employee’s pay. It is remitted to Revenu Québec periodically according to the employer’s remittance frequency, then finalized on the RL-1 Summary, and is a deductible expense for the corporation.
Contribution related to labour standards. Quebec also has a contribution related to labour standards. Revenu Québec lists the 2026 rate as 0.06% of remuneration subject to the contribution, up to the annual maximum remuneration amount, with specific employer exclusions. This contribution is calculated on the annual form, entered on the RL-1 Summary, and paid by the last day of February of the following year rather than remitted each pay period.
A Quebec incorporated contractor paying themselves salary has a more complex payroll setup than a contractor in another province, with a larger number of payroll accounts, remittances, and year-end slips to manage. The overall obligations are well-defined, but they require coordination across CRA and Revenu Québec on parallel timelines.
Common Issues
No payroll account opened. A corporation that makes salary payments and remittances without an active RP account runs into processing problems. CRA cannot properly allocate the remittance, and the corporation may receive notices that its payroll account is in arrears even after paying. Opening the account before the first remittance avoids this.
Treating draws as salary without withholding. A draw taken from the corporate account without source deduction withholding is a shareholder loan transaction, not salary. Calling it salary at year-end without having withheld and remitted source deductions creates a payroll compliance failure. The shareholder loan account guide covers how draws are properly recorded and what distinguishes them from salary.
Missing the T4 deadline. Late T4 filing carries a penalty that increases with the number of slips and the length of the delay. A corporation that files one T4 late may face a minimum penalty of $100. The T4 deadline does not extend because the T2 deadline is different.
Forgetting the employer CPP match. The employer CPP contribution is in addition to the gross salary amount, not withheld from it. A corporation that budgets only for the net salary plus the employee’s CPP portion will be short when remittance is due.
Quebec: QPIP and HSF not included in remittance. Quebec payroll involves more line items than federal payroll alone. A remittance that covers income tax and QPP but omits the QPIP employee and employer premiums or the HSF contribution will generate notices from Revenu Québec.
The payroll obligations that come with owner-manager salary are straightforward once the account is open and the first remittance cycle is established. The calculation repeats each pay period, the remittance follows the schedule, and the T4 is filed once a year. What matters for planning is that the salary amount is decided as part of the compensation framework, not after the fact. A CPA who manages both the payroll mechanics and the year-end planning ensures the two are coordinated rather than running on separate tracks.