Key Facts Every Company with Canadian Connections Needs to Know About Legal Deductions

  • by Stephane Routhier, Solution Architect, EPI-USE America
  • January 15, 2009
Learn how your SAP system helps you to complete legal deductions in Canada for federal and provincial taxes, the Canada Pension Plan/Québec Pension Plan (CPP/QPP), and Employment Insurance (EI).
Key Concept

If your company is located in Canada, has recently opened a division there, or has hired Canadian employees, you must account for the legal deductions that must be taken before Canadian workers meet the personnel income tax filing deadline at the end of April each year. This deadline is defined by the Canada Revenue Agency (CRA). For Canadian employees to fully complete their taxes, businesses have to take these legal deductions from their payroll each pay period.

As more companies branch out and go global, they are faced with the challenges that can come with adhering to a new country’s laws and regulations. Canada is one example of a country that has specific requirements for individuals working within its borders.

The Canadian federal government publishes the Payroll Deductions Formulas for Computer Programs biannually. This publication defines the federal, provincial (except Québec), and territorial income taxes, Canada Pension Plan (CPP) contributions, and Employment Insurance (EI) premium deductions. SAP Payroll functionalities for Canada are based on these publications. The Ministère du Revenu du Québec (MRQ) provides specific information for its province, but you need to register as a developer with the Province of Québec to obtain copies of the calculations details.

Although it helps if you have some background knowledge about the basics of Canada’s legal deductions, it is beyond the scope of this article to explain the details of every calculation and its legal requirements. Instead, I discuss how SAP ERP HCM handles the specific Canadian taxes listed above and the relevant configuration items. I focus on inputs that Payroll uses to calculate the deductions and how you can configure them to the best fit for your organization. I also show you three different configuration approaches. Using the right approach for your organization ensures that the system associates the right calculation elements to each employee and also limits maintenance efforts. Many users are not aware of the existence of these different approaches, and they often do not apply the best choice.

Stephane Routhier

Stephane is contributing to EPI-USE America market development and acting as a Solution Architect in the North American HCM Practice focused on the selection, planning, design, and delivery of HR solutions across multiple industries. He has more than 20 years of SAP application experience and knowledge of enterprise HCM and payroll processes, trends, issues, and organization design. He acts as an SAP Expert in the payroll area. He has been involved with large full-scale SAP ERP HCM and Payroll implementations using the breadth and depth of SAP modules. Stephane has contributed to the HCM community as a speaker and writer.


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