When to include contributions when applying payroll deductions

Payroll Deductions

Implementing a workplace retirement plan may require you to adjust the way you administer your payroll for RRSP and TFSA employee deductions and RRSP, TFSA and DPSP employer contributions.

This chart provides a quick reference for when to include employee and employer contributions when applying payroll deductions (i.e., Income Tax, CPP, EI). 

TFSA

Employee 

• TFSA contributions are made after tax
• TFSA contributions require no special treatment for payroll purposes – deduct as you normally would 

Employer

• Contributions are a taxable benefit if you are matching the employee contributions 
• Include the amount of employer TFSA contributions as additional employment income for deductions: 
  • Canada Pension Plan (CPP) 
  • Employment Insurance (EI) 
  • Income Tax
• Include the employer TFSA contribution amount in Box 40 (Taxable Benefits) on T4 slips 

TFSA EXAMPLE 

Alex’s income is $4,000 monthly, and they are contributing 3% to the TFSA. The employer will match this with an equal amount (3%).  

For payroll purposes: 

• The employer TFSA contribution of $120 (3% of $4,000) is added to Alex’s employment income (to make it $4,120) to calculate the Income Tax, CPP and EI  
• The employee TFSA contribution of $120 (3% of $4,000) is deducted from Alex’s pay after the deductions are calculated  
• The employee and employer contributions of $240 is remitted to the plan 

RRSP

Employee 

• RRSP contributions are made before tax  
• Do not deduct Income Tax from the Employee RRSP contribution amount made by payroll deduction 
• Employee RRSP contributions do not affect CPP or EI deductions 
• Deduct the amount of Employee RRSP contribution made by payroll deduction from income, to determine the amount of income tax to withhold 

Employer

• Employer contributions are a taxable benefit if you are matching the employee contributions 
• Include the amount of employer RRSP contributions as additional employment income for deductions: 
  • Canada Pension Plan (CPP) 
  • Employment Insurance (EI) 
• If employer contributions to an RRSP are restricted, do not apply EI payroll deductions
• If you have reasonable grounds to assume the employee will be able to deduct the matching Employer RRSP contribution, then do not deduct Income Tax from the Employer RRSP contribution amount  
• Include the employer RRSP contribution amount in Box 40 (Taxable Benefits) on T4 slips 

RRSP EXAMPLE 

Charlie’s income is $6,000 monthly, and they are contributing 5% to the RRSP. The employer will match this with an equal amount (5%).  

For payroll purposes: 

• The employer RRSP contribution of $300 (5% of $6,000) is added to Charlie’s employment income (to make it $6,300) to calculate the CPP and EI deductions
• The combined employee and employer RRSP contributions of $600 is deducted from Charlie’s employment income before calculating the Income Tax to withhold 
• The employee and employer contributions of $600 is remitted to the plan 

RRSP/DPSP

Employee 

• RRSP contributions are made before tax
• Do not include employee contributions as a taxable benefit when calculating the amount of income tax to deduct
• Employee RRSP contributions do no affect CPP or EI deductions

Employer

• DPSP: Employer contributions are not a taxable benefit and are not tax deductible by the employee
• RRSP: Employer contributions are a taxable benefit and are tax deductible if you are matching the employee contributions
• Do not include the amount of employer DPSP contributions as additional employment income for deductions to: 
  • Canada Pension Plan (CPP) 
  • Employment Insurance (EI) 
• Report a Pension Adjustment (PA) for annual employer contributions made to the DPSP on behalf of an employee. Show the amount in Box 52 (Pension Adjustment) on T4 slips
  • A PA will reduce the employee's RRSP contribution room in the following year

RRSP/DPSP EXAMPLE 

Charlie’s income is $6,000 monthly, and they are contributing 5% to the RRSP. The employer will match this with an equal DPSP amount (5%).  

For payroll purposes: 

• The employer DPSP contribution of $300 (5% of $6,000) is not added to Charlie’s employment income to calculate the CPP and EI  
• Only the employee RRSP contribution of $300 is deducted from Charlie's employment income before calculating the Income Tax to deduct
• The employee RRSP and employer DPSP contributions of $600 is remitted to the plan