Charity and NPO Payroll: T4s, T4As and Source Deductions

The first employee is where a small organisation's bookkeeping stops being optional. You need a payroll account, you owe money to CRA on a schedule set by rules you did not choose, and the slips at year end have to agree with what you remitted all year. None of it changes because you are a charity or a nonprofit. This guide covers the account, the deductions, the remittance clock, the slips and the year-end tie-outs.

Do payroll rules change because you are a charity?

No. Payroll obligations are the same for a registered charity, a nonprofit and a business. Tax-exempt status applies to the organisation's own income, not to the employment income it pays out.

An organisation that pays no income tax still withholds tax from staff, pays its share of contributions and premiums, and files slips.

Where charities and nonprofits do differ is the reporting at the far end. A registered charity reports employee compensation on the T3010 through Schedule 3. A nonprofit that is not a registered charity has no T3010 at all; if it meets a filing test it reports remuneration in Part 4 of the T1044, and where it is incorporated its corporate return is the T2. Everything before that point is identical.

What do you need before the first pay run?

A payroll account, a completed TD1 from the employee, and a decision you have already made properly about whether this person is an employee at all. Payroll starts before the money moves.

The payroll account is a program account under your business number, opened in My Business Account. Registration has to be in place by the first remittance due date, and opening it before the first pay run is the sensible way to meet that. If your organisation already has a business number for another purpose, you are adding a program account rather than registering afresh.

The employee completes the federal and provincial or territorial TD1 for where they work. Those set the claim codes that decide how much income tax comes off. Keep them, and update them when circumstances change.

The classification question comes first. If the person is genuinely self-employed, none of this applies. If they are an employee and you treat them as a contractor, the cost of being wrong falls on your organisation, and that is covered separately.

Set up the ledger accounts at the same time: wages, employer contributions, and a liability for what you owe CRA. A chart of accounts built before the first pay run saves an unpicking exercise later.

What comes off each pay, and when do you remit it?

Canada Pension Plan contributions, employment insurance premiums and income tax, remitted on a schedule set by your remitter type. The amounts change every January; the structure does not.

There are now two tiers of pension contribution. Base Canada Pension Plan contributions apply up to the year's maximum pensionable earnings, and second additional contributions apply to earnings between that maximum and a higher second ceiling. Use CRA's payroll deductions tables or its online calculator for the figures that apply to the year you are paying in, because the rates, maximums, second ceiling and basic exemption change from year to year. Your organisation also owes its own share of the contributions and premiums on top of what you withhold.

Your remitter type comes from your average monthly withholding amount two calendar years ago, and CRA reviews every payroll account each November.

‍

‍

Two points about the clock. The pay date drives the remitting period, not the period end date, so a pay period ending in June with a July pay date belongs to July. And CRA sends a PD7A statement of account, which is worth reconciling rather than filing, because it is where a shortfall shows up first. Confirm your own remitter type in My Business Account rather than inferring it from your software.

Who gets a T4 and who gets a T4A?

A T4 for employees, and a T4A only where the payment falls into a category the T4A reports. The slip follows the relationship, not the size of the payment, and not every payment to a non-employee produces a slip at all.

Issue a T4 where you deducted Canada Pension Plan contributions, employment insurance premiums or income tax from an employee's remuneration, or where the total remuneration paid to that employee in the calendar year was more than $500. There is a third case: where you provide a current employee with a taxable group term life insurance benefit, the T4 is always required even if total remuneration was $500 or less.

The T4A covers specific reportable categories rather than everything else. Fees or other amounts for services go in box 048 where the payments to that provider exceed $500 in a calendar year, reported without GST or HST. CRA introduced a moratorium on penalties for failing to complete box 048 in 2011. That moratorium has been lifted for the trucking industry, where payers now face penalties for unreported payments over $500 to Canadian-controlled private corporations in that industry, so the safest position for any organisation is to complete the box.

Honoraria, stipends and payments to board members do not have an obvious home, and the answer depends on what the payment actually is rather than what it is called. That is a separate subject with its own article.

The T2200 is not a slip at all. It is a declaration an employer completes at an employee's request so that the employee can claim certain employment expenses, and it is covered separately.

What happens at year end?

Slips and summaries to CRA and to your people by the last day of February, for the previous calendar year. Where that date falls on a weekend, the next business day applies. More than five information slips of one type for the year must be filed electronically.

Work backwards from it: December pay posted, taxable benefits in the final run, last remittance made, and the totals remitted agreeing with the slips before filing.

Reconcile in three steps: wages and employer contributions per the ledger, against the sum of the slips, against the total remitted per the PD7A statements. Two of three agreeing is not a reconciliation. CRA then runs its own check: the pensionable and insurable earnings review compares the earnings and deductions on your slips and issues an assessment where the contributions look short, which is why boxes for pensionable and insurable earnings should never be left blank.

Records of employment arise on an interruption of earnings, not at year end. Issue them when the event happens.

Where does payroll land on your annual return?

On Schedule 3 for a charity, and only there. Registered charities answer a question asking whether they had compensation expenses in the period, and answering yes requires Schedule 3.

Compensation on Schedule 3 is broader than salary. It includes salaries, wages, commissions, bonuses, fees, honoraria, and taxable and non-taxable benefits, plus your organisation's contributions to an employee's pension, medical or insurance plan, employer Canada Pension Plan and employment insurance contributions, and workers' compensation premiums. It excludes reimbursements of expenses incurred while working for the charity.

The schedule reports the number of permanent full-time positions, band counts for the ten highest compensated positions, and part-time or part-year figures. Total compensation transfers to the compensation line of Schedule 6 only where Schedule 6 is the schedule you completed; an organisation reporting through Section D has no such line.

The same payroll then splits across lines 5000 for charitable activities, 5010 for management and administration, 5020 for fundraising and, where applicable, 5040 for other purposes, on a basis that is reasonable and applied consistently. Document the basis once rather than reinventing it each year.

For a nonprofit that is not a registered charity, none of the T3010 applies. Remuneration is reported in Part 4 of the T1044 where that return is required, with the number of members and the number who received remuneration.

What happens if you deduct or remit late?

An employer that fails to deduct the required contributions and premiums has to pay both the employer's share and the employee's share, plus penalties and interest. That is the exposure, and it does not depend on intent.

Amounts you withhold are not your organisation's money. They are held for CRA from the moment they come off the pay, so the payroll account is never the place to absorb a cash shortfall. CRA's employers' guide covers directors' liability for unremitted amounts, worth a board member reading.

The failures that produce assessments are ordinary: a remitter type that changed at the November review unnoticed, a December bonus remitted on the January clock, a taxable benefit left out of the final run, or a contractor who was an employee. Our note on common pitfalls covers several of these from the bookkeeping side.

Being behind quietly is the expensive version. Bring the account current, reconcile what was remitted against what should have been, and correct the slips. Keeping the payroll records reconciled and the year-end tie-outs clean is part of what our scope of service covers, alongside ongoing bookkeeping support. Processing the payroll itself, and advice on deductions, sit outside it.

Frequently Asked Questions

We pay one part-time person. Do we still need a payroll account?

Yes. There is no minimum size at which payroll obligations begin. If you have an employee you need a payroll program account, registered by the first remittance due date, and you calculate and withhold the deductions required on each payment.

Do we issue a T4 to someone who earned $400?

If you deducted Canada Pension Plan contributions, employment insurance premiums or income tax from them, yes, regardless of the amount. If you deducted nothing and paid $500 or less, the slip is not required on that basis, unless you provided them with a taxable group term life insurance benefit, in which case it always is.

When are T4 and T4A slips due?

By the last day of February for the previous calendar year, with the next business day applying where that falls on a weekend.

What is the PD7A?

The statement of account CRA issues for your payroll source deductions. Reconcile it against your own records rather than filing it, because it is where a missed or misapplied remittance appears first.

Does a nonprofit that is not a charity have different payroll rules?

No. The payroll rules are identical. What differs is the reporting at the other end: a nonprofit has no T3010 and no Schedule 3, and reports remuneration in Part 4 of the T1044 where that return is required.

Can we pay someone by invoice to keep it simple?

Only if they are genuinely self-employed on the facts. The label does not decide it, and if CRA finds an employment relationship your organisation carries both shares of the contributions and premiums plus penalties and interest.

This article covers the payroll obligations of Canadian charities and nonprofits as at September 2026. Contribution rates, annual maximums and earnings ceilings change periodically and are deliberately not reproduced here; use CRA's payroll deductions tables or online calculator for the year you are paying in. Worker classification, honoraria and expense reimbursements are covered separately.

‍